When working with freelancers, it’s important to set clear expectations for freelance travel expenses.
Does your company’s travel expense policy cover how to manage contractor expenses? When working with freelancers, consultants, or contractors, it’s important to make your travel expense reimbursement policy clear.
In this article, we’ll cover the common challenges that you’re likely to face when tracking and reimbursing freelance travel expenses. With a defined outline of allowable expenses, invoicing methods, and required documentation, you’ll ensure that finance teams and freelancers are on the same page.
Yes, contractors can often claim travel expenses, but the process may differ from full-time employees. Contractor allowable expenses include any costs incurred as part of doing business, whether these include mileage used to visit a client or flights and accommodation costs from visiting a trade fair.
Self-employed contractors or freelancers usually can claim travel expenses from their country’s tax authority or directly from a client. In either case, it’s important that they keep accurate records of all expenses along with bills or receipts as evidence.
The rules for reimbursable contractor travel expenses are comparable to any other business travel expense. Generally, expenses are allowable provided the money was spent during necessary business away from the home or office, rather than for personal reasons.
Rules will vary by country. In most frameworks, allowable contractor expenses include things like airfare, accommodation, food, car rentals, fuel, mileage, parking fees, conference admissions or tickets, and public transport.
Depending on the type of work the contractor is performing for your business, it could also include job-specific costs such as renting audiovisual
In terms of non-allowable contractor expenses, freelancers shouldn’t expect reimbursement for personal expenses. This could include things like hotel room entertainment, everyday commuting or a new outfit for a business trip. Expenses that go above budget, such as business class flights and luxury hotels, may also not eligible for reimbursement. It’s also important to clarify these allowable and non-allowable expenses with a travel policy for freelancers.
Before determining how to best manage freelance travel expenses, it’s important to understand the tax implications. This starts by defining the worker’s role within your organisation and whether they qualify as self-employed or not.
The specific employee classification rules will vary by country. These will impact your company’s expense reimbursement obligations dependent on whether you’re considered a contractor’s employer or client. Here are a few questions that determine whether the worker is classed as employed or self-employed for tax purposes:
If the answer to these questions is yes, they’re more likely to be classed as an employee.
When the answer to these questions is yes, the individual should usually be classed as an independent contractor instead.
You can also use your country’s government website for more information about employment classifications. Examples include the UK’s HMRC’s Check Employment Status for Tax (CEST) or Germany’s Federal Ministry for Economic Affairs. In the United States, use the IRS website for clarification.
The difference matters for tax compliance – both for your company and the contractor.
Agency workers, also called temporary or temp workers, can often claim travel expenses, but this would be handled by the agency, rather than your business.
When businesses hire workers through a temp agency, it’s the agency that pays the contractor’s wages and expenses. This is because the agency stands as a third-party service provider between contractor and business.
If your company hires contractors through an agency, travel expenses would need to be considered as part of any negotiated fees with the agency, not the worker.
When there’s a clear distinction between full-time employees and freelancers, different expense management procedures may apply.
Per diems are fixed amounts allocated to cover daily travel expenses, including lodging, meals, and incidentals. Commonly used to reimburse employees, per diems can also pay for freelance business expenses and streamline reimbursement.
When working with contractors, some negotiation may be required to find a mutually favourable rate. As a starting point, companies can either follow standard rates set by government authorities, or choose your own rates based on current cost of living figures.
Selecting official travel regulatory rates is often preferred, and these are frequently updated.
As a baseline for negotiation, here are example per diems from the US State Department, the European Union, and UK Government.
Once you’ve negotiated a per diem rate, put it in a clear written agreement. This should not only include the per diem amount, but also the expenses covered and their tax implications.
In addition to travel expense rates, another factor to consider is your preferred billing method. When contractors travel on your behalf, they can charge you for the expenses, depending on tax classification.
Contractors typically send invoices according to one of the following methods:
If you accept advance invoices, it’s important to verify estimated expenses. One way to do this is by using an SME travel management solution like Tripeden.com for Business, where you’ll have full visibility over rates for accommodation, flights and car rentals in one place. You can also share approved vendors with contractors to keep travel costs within budget.
The tax implications of freelance business expenses can swiftly become complicated. One important detail to consider is Value-Added Tax (VAT). If your contractor is VAT registered, they will need to charge VAT on any services provided and make sure that VAT isn’t applied twice to expense reimbursement.
A clear contractor reimbursement policy takes any confusion out of the travel expense process. It not only helps your company stay within budget when paying for contractor travel expenses but also sets expectations on both sides.
You can use an existing travel expense policy template and adapt it with contractor-specific details. Make sure it answers the following questions:
The best way to handle contractor expenses depends on your business size and workflow. Here are a few final tips to optimise freelance expense management.
To meet your own accounting deadlines, it’s important to receive all invoices and receipts in a timely manner. Otherwise, receipts can go missing and processing becomes delayed. Working with contractors means you won’t always have your team onsite, which means it’s even more important to set clear deadlines for expense report submission.
Take advantage of technology to streamline the claims and reimbursement process. Ask contractors to digitally upload receipts and bills as they’re received to expedite the reimbursement process. Apps like Expensify let business travellers snap photos of receipts on the go for instant upload, and also include mileage tracking features as well as full integration with accounting tools for more accurate invoicing.
Average hotel rates can vary widely from one year to the next, particularly when factoring in currency fluctuations and regional inflation. Before negotiating per diem rates with new contractors, make sure you’ve done some research into the real-time cost of travel. Use tools like Tripeden.com for Business to compare flight and accommodation prices and find the best corporate rates.
No matter which country you’re operating in, verify the local tax regulations when it comes to working with freelancers or employees. This will directly impact travel expense deductions, which is something you need to work into your budget. Accurate recordkeeping is also vital to stay compliant with tax laws and regulations.
With expense tracking tools, companies gain real-time visibility over contractor travel expenses, cutting down on time-intensive paperwork. And with travel management software, you’ll be able to streamline the travel expense reimbursement process for full-time employees and contractors alike. Tripeden.com for Business helps companies manage contractor itineraries while keeping business travel expenses in line with budgetary needs. Build policy compliance into the booking process while taking advantage of exclusive discounts and 24/7 customer support.
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