When employees fail to turn in receipts for business expenses, it can create headaches for accounting teams, potentially lead to IRS non-compliance, and even open the door to fraud. Businesses across the U.S. have implemented various policies to address this issue, but sometimes those processes aren't even legal? Let’s dive into the best practices to manage missing receipts effectively.
Why receipts matter
- IRS Compliance: Per IRS rules, business expenses over $75 require documentation to be written off. Missing receipts mean the company may have to absorb the cost as a non-deductible expense.
- Fraud Prevention: Missing receipts make it harder to verify the legitimacy of purchases, creating opportunities for misuse of company funds.
- Accountability: Receipts provide a clear trail, ensuring employees and employers remain on the same page about business-related spending.
Can you deduct expenses from wages?
A common approach is deducting the unverified expense from the employee’s paycheck. However, this can be legally questionable depending on your state’s laws.
Federal and State wage deduction laws
The Fair Labor Standards Act (FLSA) sets general guidelines, but states have the final say in wage deduction laws. Many states, like Texas, require one or more of the following before deductions are legal:
- Court Order: The deduction must be ordered by a court.
- Legal Authorization: Certain deductions, such as taxes or garnishments, are allowed under state or federal law.
- Written Consent: Most states, including Texas, mandate that employees provide written authorization for deductions to cover unproven expenses.
Examples of state-specific laws
- Texas: Section 61.018 of the Texas Labor Code prohibits wage deductions unless there’s a court order, legal authorization, or written employee consent.
- California: California law is strict, disallowing wage deductions for unproven expenses unless the employee agrees in writing and the purpose is lawful.
- New York: Employers must comply with strict guidelines under the New York Labor Law, including obtaining written consent and specifying deduction purposes.
- Florida: While more lenient than some states, Florida employers must still avoid arbitrary deductions and typically require written consent.
Before implementing a policy to deduct wages for missing receipts, consult your state’s specific labor laws or a legal professional.
What we recommend.
Several common strategies have emerged to manage missing receipts:
- Capture Receipts Immediately
Tools like Outpave allow employees to snap photos of receipts at the time of purchase help reduce lost documentation and improve compliance. - Transparency and Notifications
Be clear on compliance status. If it requires the employee to check with accounting to see if they are compliant, it's puts a burden on your employees and your accounting team. Use a solution like Outpave which tells your employees their current compliance status right in the application. - Escalation Procedures
If employees fail to comply, notifying their managers or other leaders can enforce accountability. Employees are often more diligent when higher-ups are looped in. - Disciplinary Action
Companies may suspend cards or enforce conversations with senior leadership to address persistent non-compliance.
Final thoughts
Managing missing receipts is about balancing legal compliance, practicality, and accountability. While strict policies may yield results, fostering a culture of accountability through supportive tools and transparent communication is often more effective—and legally safer.
Before enforcing deductions for missing receipts, check your state’s labor laws. Better yet, consult a legal professional to ensure compliance. A proactive, compliant approach not only minimizes risk but also fosters trust and responsibility within your team.
