As seen in:
Expenses Economy definition:
Any transaction that can be expensed for, or on behalf of a company or organisation can be considered part of the expenses economy. This can be done using either company payment methods or out of the employees own pocket. If out of their own pocket, employees need to reclaim the money owed to them via their employers’ expenses process and policy
Expend is on a mission to solve the expenses problem for businesses and employees, we’re doing this by using our cutting-edge technology to reduce admin and finance problems. So in June 2018 we commissioned OnePoll to research UK employees experience with their expenses, so we could understand the state of the UK Expenses Economy. Unfortunately, we learnt that the expense management process in businesses in the UK is in a poor state and the hidden costs are affecting employees up and down the country.
Nearly 1/3 (29%) of respondents have asked friends or family for cash while out of pocket waiting for company expenses to be reimbursed or paid, showing the dire personal impact poor expenses policies can have on the lives of UK employees.
The independent research also showed that over half of UK workers (51%) have had to put expenses on a personal credit card or go into their overdraft due to expenses, incurring personal debt in order to facilitate costs for the businesses they work for.
Nearly a third (32%) of UK workers have been unable to pay off the balance the same month due to their company expense policy, leading to unnecessary debt. Compounding the problem, more than 1/5 (21%) UK employees have to wait longer than a month for expenses to be repaid. Perhaps unsurprisingly, over two thirds (69%) of workers consider being left out of pocket by their employer unfair or very unfair.
As a worrying consequence, nearly 1 in 6 employees (15%) stated they would profit from business expenses if they could get away with it. In addition, over 1 in 10 (10%) workers would spend more than they normally would to make a company expense worthwhile, again if they could get away with it.
“This research had some frankly shocking findings highlighting the scale of the expenses charade in the UK,” concluded Johnny Vowles, CEO of Expend.
“It’s simply unacceptable that workers have to borrow money from family and friends or go into their credit cards or overdrafts to float their company’s expenses. We certainly don’t think businesses do it intentionally as a cash flow solution, but the problem does exist. Organisations need to be able to control expenses so that employees that need to pay out for company costs either have the money available to do so or at least are reimbursed as soon as possible. Businesses with lax expense policies can also benefit from technology to harness greater control over expenses, which can have a significant impact on a company’s financial planning.”
Our research uncovered that Generation Z and Generation Y employees are the most negatively impacted by facilitating their employers’ expenses.
Over a quarter (27%) of Generation Z employees (18-24 year olds) have not been able to pay off credit card bills because they have outstanding company expenses due to them from their employer.
This appears to be making younger employees the least tolerant of existing processes for expenses – 82% of UK Generation Z employees find being out of pocket from expenses very unfair and 42% would move jobs because of a poor expense policy.
The average amount of debt for a University leaver is now £50,000, and yet the average starting salary for most graduates is £19,000 – 22,000. According to the ONS, wage growth slipped to 2.7% from 2.8% in the three months to May 2018. However, despite the slowdown in wage growth and increased cost of living, young employees are still expected to float expenses for the business. These factors combined mean that younger workers are more financially sensitive than ever before, and yet are still expected to pay their employer’s expenses and go out of pocket each month, which can have a significant impact on their personal finances.
Out of all age groups, Generation Z workers are most likely to circumvent the expenses policies of their employer, with over a quarter (27%) stating they would spend more than they normally would to make a company expense worthwhile, if they could get away with it. Nearly 1 in 5 (18%) of Generation Z employees stated they would profit from business expenses if they could get away with it.
The picture for Generation Y/Millennials (25-34 year olds) isn’t much better. Research from independent think tank The Resolution Foundation has shown that UK millennials are now some of the worst off financially in the developed world, only behind Greece. The home ownership rate in their late 20s, at 33%, is half that for the baby boomers at the same age (60%). Our research showed this age group would be the least inclined out of all respondents to take a job if it had a poor expense policy, with 40.87% saying they wouldn’t.
Mind the generation gap
On the other hand, older age groups are disproportionately tolerant of the existing system of expensing. The 55+ age group is the least likely to circumvent expenses because of a poor expense policy, and only 4.90% of them said that they would expense items they shouldn’t if they could get away with it.
“Many companies have wised up to general expenses abuse. They ask that you use your own personal card and claim it back later according to a set of guidelines so complex it makes Brexit negotiations look like child’s play. And guess what — these rules seldom apply to the boss. According to a recent survey by Expend, nearly one-third of UK employees have had to ask family or friends for cash because their expenses had to be put on a personal card, with one in five having to wait over a month to be repaid.” James Max – Rich People’s Problems: The trouble with expenses claims
“Younger employees have a hard deal at the moment with rising living costs, wage growth described as ‘anaemic’ by the ONS and higher than ever student debt. While the current expenses system is just the way things have always been done, for some employees this could be the straw that broke the camel’s back. Organisations need to look at how all processes are impacting on their younger workforce, to encourage recruitment of happy workers but also to minimise the business risk. Disenfranchised younger workers more open to circumvent expense policies and profit from them than even before, so employers also need to gain greater oversight over their company finances to protect themselves.”
At a national level, the average amount of out of pocket expenses people claim in their current job is £843.24 every year, which amounts to £27.3 billion across the whole UK workforce..
Of this, £109 goes unexpensed each year on average which amounts to UK employees not claiming over £3.5 billion. Almost a third of this is due to the expense not complying with the company’s expenses policy.
But it’s not just about money, collectively over 2 million years of business working days are spent each year by UK employees filing company expenses.
The most common reasons for expenses going unreimbursed are:
Looking at results by sector, the profession where most employees claim back expenses is the charity and voluntary sector where 82% claim expenses on a monthly basis. The industry with the highest average amount of expense claims each monthly is hospitality and events management at £145.50 per month. Hospitality and management also spends the most time collating receipts and filing expenses out of all sectors, spending 3.78 hours, or nearly half a working day, every month just on expenses admin.
Johnny Vowles, CEO of Expend said, “This research shows that business expenses aren’t just a pain for employees, but they can have a significant effect on the operational efficiency of the organisations they work for. Employees manually filling out expense forms and financial teams chasing individuals for expense submissions are drains to valuable time that can be better focused on the core business. In addition, the average amount unexpensed each month might sound good to the business owner, but if all those receipts are found and claimed for in one go that can represent a significant financial hit to company cashflow.”
Nearly 1 in 5 employees (19%) would feel more satisfied and motivated if expenses did not come out of their pocket, while 1 in 6 (16%) would welcome better technology that stopped them being out of pocket. Over 1 in 5 (22%) employees would also welcome technology to improve the time spent on filing company expenses.
The Expend Expenses Manifesto
We’re making expenses awesome for employees and beautiful for businesses and accountants by:
1. Eliminate out of pocket expenses when possible using Expend’s connected payment card, app and management dashboard. No employee should have to pay out of their own pocket, pay on personal credit cards or borrow from family or friends to simply do their job.
2. When (for whatever reason) an employee needs to pay out of their own pocket, Expend will provide the tools to employees to file their expenses faster, without errors and as free of admin as possible, so businesses pay them back without any unnecessary delay.
3. Give UK companies the tools and power to manage expenses and company spending within their own expenses policies. Stop awkward conversations with employees and remove the uncertainty on their liabilities and cash position.
4. Eliminate the admin burden for companies, supporting their employees, financial teams and accountants.
So they can focus on growing their business in 2019 and beyond.
5. Help businesses get ready for Making Tax Digital (MTD) and reduce the number of lost receipts and unclaimed VAT.