Of all the dramatic changes caused by the Covid-19 pandemic, the widespread shift to working from home is certainly one of the most significant. Predictably, employee ‘travel and entertainment’ (T&E) expenses are way down, but the change to widespread remote work has meant the emergence of a whole new category of employee expenses.
AppZen research shows that amongst UK employees who are now working from home, 93 percent made the switch because of Covid. Accordingly, this switch has resulted in an increase in the number of employees regularly claiming ‘working-from-home’ expenses, with a 57 percent increase in expense claims for internet and a 50 percent increase in claims for electricity and gas.
Yet, with such a large increase in the number of people now working remotely, it’s somewhat surprising that the number of corresponding expense claims hasn’t also gone up more. The overall volume of working-from-home expenses grew from 69 percent to 75 percent after lockdown – not as significant as might be expected.
A new study by AppZen shines a light on possible reasons why, and several areas where organizations have room from improvement.
Expense policies need updating
Part of the reason the rise in working-from-home expenses hasn’t been as steep as anticipated could be that some employees feel uncomfortable about claiming for new types of expenses. It’s likely that this is directly linked to a lack of action on the part of many employers. Only around half of organizations have updated their expense policies during 2020, leading to confusion among employees about what is considered a legitimate business expense.
The lack of adaptability in expense policies has resulted in limitations on the type of items employees are permitted to claim – even when such expenses are entirely reasonable and justified under the circumstances – and is causing further confusion and discontent among employees.
Employees haven’t been incurring their usual travel and entertainment expenses, but are instead encountering new types of work-from-home related expenses, from one-off items like office chairs, external monitors and desks, to recurring costs such as internet usage, utilities and childcare.
Organizations need to adapt their expense policies quickly to embrace this changed environment. New policies need to be clear, fair and applied promptly and consistently across the entire organization. Software that uses AI-based automation can be used to address this issue by applying specific, organization-wide rules and removing any areas of bias. Such systems can ensure that all claims by all employees are treated equally and are processed quickly.
Not only do updated expense policies provide clarity for employees, but 83 percent of employees who received an updated policy due to Covid said their employer fairly compensates them for working from home-related expenses, compared to only 29 percent of employees at companies where the policy was not updated.
Employees need to feel they are fairly treated
In addition to variances among different organizations as to what remote work expenses are covered, there are discrepancies among different employees within the same organization. Research shows there is a clear bias in favor of senior employees and those who were already set up for working from home before the pandemic struck. Significantly more employees in management positions reported being reimbursed for working-from-home expenses, as compared to those in non-management positions. Potentially, this is due to the fact that a good portion of senior members of staff (42 percent of business owners/business partners and 37 percent of sales managers) already worked from home before the Covid lockdown and, as such, were better versed as to what qualifies as a legitimate working-from-home expense and how to go about claiming it. For those employees new to working from home, however, there’s been a great deal of confusion and uncertainty, as many organizations have been slow to adapt and provide updated policies.
Most employees get reimbursed for work-related expenses that they have paid for with their own money. It’s generally only senior company executives who are likely to have company credit cards and expense accounts. This means that those with lower incomes are expected to pay their way and be reimbursed at the company’s discretion, while those on larger salaries don’t see the same impact on their bank accounts. In organizations where staff see frequent reimbursement issues, Trinet research shows that 71 percent of employees are likely to begin looking for a new job.
This highlights the need for easy to use, well-understood expense processing capabilities with rapid reimbursement at every company level.
What’s more, women are less likely (59 percent) than men (80 percent) to feel fairly reimbursed for working-from-home-related expenses. This could be due to a whole host of factors, including that women are more likely to work in industries, such as education and healthcare, that cover fewer remote-work-related expenses, as well as the fact that women are less likely to hold executive positions for which expenses are more often reimbursed. As well, the disparity could be attributable to women being less inclined to claim expenses in the first place, with research by Allstar showing that, in general, women claim less than half the business expenses of men.
Another area of interest is childcare expenses. There has been no increase in childcare claims despite many schools being closed and many parents forced into home-schooling while also working from home. Indeed, only 19 percent of respondents claimed that their employer fully considered childcare costs. Given that joint research by the universities of Oxford, Cambridge and Zurich showed that working women in the UK, Germany and the US did more childcare and home-schooling across all wage brackets in March and April this year, compared to men with similar earnings, it’s no surprise that many women are feeling the lack of childcare support more keenly.
Applying AI to expense management
The latest AI-powered expense management systems enable organizations to move away from manually processing expense claims. By using intelligent automation to apply a consistent set of rules and policies, bias and inconsistencies are removed and the speed of processing of employee expense claims is significantly improved.
AI technology is perfectly suited to this area. AI looks at everything – every transaction, every line item – reviewing all claims against predefined rules. AI can also access and apply everything it has seen, and review each transaction in context, not in isolation, so it can be used to identify problematic patterns across a large number of different users and companies.
Such systems enable organizations to set their own rules and decision-making criteria based on their specific policies, giving them the ability to adapt quickly to changing circumstances and implement organization-wide policies.
In 2020, we are experiencing some of the biggest changes ever to working practices, but in many instances, established company practices are failing to keep up. Expense management is one such area.
The lack of effective communication about updated policies, executives receiving preferential treatment and a still unbalanced dynamic between the genders, all remain consistent issues that must be addressed and rectified.
Expense management has become more complex, making the need for data-driven systems that provide automation, visibility and control over expenditure more important than ever. An AI-based system means organizations can implement a systematic and consistently fair approach that ultimately improves efficiency for the organization, increases employee satisfaction and reduces finance team workloads.
Clear and consistent expense policies are a fundamental starting point, but having the right IT systems to support an agile approach to spend management is equally vital. The capability to customize policy parameters, notify staff of changes and automatically apply new policies to incoming expense claims are all essential to navigating through the challenges of today’s work landscape, as well as those on the horizon.
Andrew Foster, VP Consulting EMEA, AppZen