Reimbursable expenses: Overview, definition, and example
What are reimbursable expenses?
Reimbursable expenses are costs incurred by an individual or business while performing duties under a contract that the paying party agrees to cover. These expenses are typically pre-approved and outlined in an agreement, ensuring that the person or company incurring the costs is fairly compensated.
For example, if a consultant travels to a client’s office for a project, expenses such as airfare, hotel, and meals may be reimbursable if specified in the contract. The consultant would submit receipts, and the client would cover the agreed-upon costs.
Why are reimbursable expenses important?
Reimbursable expenses help ensure that employees, contractors, and service providers are not financially burdened while carrying out business-related tasks. Clearly defining reimbursable expenses in contracts prevents disputes by setting expectations on what costs will be covered, how they should be documented, and when reimbursement will be processed.
For businesses, establishing a clear reimbursable expense policy helps manage costs, prevent unauthorized spending, and ensure compliance with tax and accounting regulations. Without such guidelines, disagreements may arise over whether certain expenses qualify for reimbursement.
Understanding reimbursable expenses through an example
Imagine a company hires a freelance marketing consultant for a project. The contract states that any travel required for client meetings will be reimbursed, including transportation and lodging. If the consultant books a flight and hotel for an on-site visit, they can submit receipts and receive reimbursement from the company.
In another case, an employee attends a work conference on behalf of their employer. The company’s reimbursement policy covers conference registration fees, transportation, and meals within a specified budget. To get reimbursed, the employee must submit an expense report along with receipts.
An example of a reimbursable expenses clause
Here’s how a reimbursable expenses clause might appear in a contract:
"The Company shall reimburse the Contractor for all reasonable and pre-approved expenses incurred in connection with the performance of services under this Agreement, including but not limited to travel, lodging, and meals. The Contractor must submit itemized receipts within [X] days of incurring such expenses for reimbursement."
Conclusion
Reimbursable expenses ensure that individuals and businesses are fairly compensated for costs incurred while fulfilling their contractual obligations. By clearly defining which expenses qualify for reimbursement and outlining the process for approval and payment, businesses can avoid disputes and maintain financial transparency. Both parties should carefully review reimbursement policies to ensure clarity and compliance with agreed terms.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.