Year-End Expense Reports and How To Curb Employee 'Creativity'

by ERICA KONIECZNY, marketing writer, Procore Technologies | Dec 18, 2015

Construction continues to be a mobile industry, which means we all deal with travel expenses. So check out some of these best practices when handling certain expenses to make sure that you are doing everything "by the book".

Creativity in construction is plentiful, and nowhere is it more evident than in payroll practices. The recent U.S. Dept. of Labor (DOL) crackdown on companies paying per diem in lieu of wages, highlighted the not-so-positive side of that creativity. But, per diem, when done right, helps employees cover the costs of travel they do while working, and benefits companies by reducing costs and streamlining complex processes.

The Findings

Earlier this year, DOL discovered that some staffing agencies supplying labor to construction firms were avoiding overtime payments by paying per diem in place of regular wages. Now, more than 3,000 employees are getting almost $3.5 million disbursed in back wages from those staffing companies. Liability extends to staffing agency clients if it’s determined that the workers are "jointly employed".

But there is no easy or fast way to determine the above, which has caused several states to pass legislation clarifying the relationships. In general, your company can become a joint employer if it has “direct and immediate control” over another company’s employees. The final decision is up to the courts, but in disputes (so far), the rulings have said staffing agencies are joint employers with their clients. As always, the best defense is a good offense, which means properly vetting your staffing agency, and knowing how it is paying the employees it provides to you.

Another Form of Payment

There are also other news reports of construction companies using per diem in place of regular wages for overtime pay. Those receiving per diem instead of OT think they’re getting a deal because the money is tax free. Processed right, per diem payments are not taxable wages, and not subject to employment taxes. But, when used to replace overtime, experts say it’s a form of wage theft because the per diem doesn’t "pencil-out" to what the person would have made if they had gotten overtime. It’s also mis-using a system that is supposed to help businesses avoid the hassles of accounting for travel expenses.

Each year in October, the Internal Revenue Service publishes the daily amounts companies can use when accounting for travel expenses. When using a per diem system, employers don’t have to require workers to account for each meal and lodging expense. Instead, the employee claims the per diem rate, so receipts are not necessary, which makes the process quite painless.

Besides Per Diem

Per diem is just one part of the employee travel expense picture. What about all those other expenses a construction employee might have when traveling? Fuel, equipment, tools, materials, and even costs for entertaining clients are all examples. All have to be accounted for, and there is surprising evidence that companies are not taking advantage of technology to tame this administrative task.

Many organizations still sift through hundreds of papers when processing travel expenses, increasing costs by 23% for small business. For large corporations, dependence on the paper trail is increasing processing expenses by 43%.

A recent PayStream Advisors poll confirmed that the real issue behind rising costs was reliance on manual processes. For example, 69% of respondents said they "file their receipts by mailing them to the accounts payable department”. Even more troubling was finding that 80% of organizations didn’t even know how much it was costing them to process employee expenses!

Having a Policy

Besides adopting automation when processing employee expenses, construction companies also need to tend to the basics. This means implementing a written expense policy. It doesn’t have to be complicated; in fact, the simpler the better. The goal should be to list the categories of expenses and tell whether employees can use their own discretion, if there are limits based on per diem, and what expenses require up-front approval from a manager.

Having a sound policy not only informs employees and avoids misunderstandings, but it also acts as evidentiary support if you’re ever questioned by the IRS about whether expenses are genuine. So make sure the policy is easy for your employees to access, and that you promote it regularly. Also, make sure people know to whom to talk if they need help completing expense reports. PayStream Advisors found that more than half of the employees surveyed did not understand their travel expense policies!

Reporting the correct data

Finally, it is vital that your employees are capturing the right information. For tax purposes, some expenses require different information than others. Be specific in your policies so employees are not forced to guess. Take advantage of technology because certain expense management solutions, like Procore, let you custom-tailor fields that must be completed before an employee can submit expenses.

When you manage employee expenses fairly, and do it better, the benefits will exceed just saving time and money. You avoid the unwanted notoriety that comes with wage disputes and legal judgments.

Based in Carpinteria CA, the author is a regular contributor to the Procore Blog.