How to Properly Reimburse Business Travel Expenses in 2021

What you need to know to correctly pay an employee's working days when they were on a business trip

• What constitutes a business trip and what documents are needed to formalize it
• How business trip days are paid and what you need to know for this
• How to correctly calculate average daily earnings
• Are bonuses and other accruals included in the calculation of average daily wages
• Example of business trip payment in 2021.

If you are an accountant, this article will help you understand the issue of employee business trip payments, taking into account the latest legislative changes.
In December 2020, the Government amended the Procedure for Calculating Average Wages, approved by CMU Resolution No. 100 of 08.02.1995 (hereinafter – Procedure No. 100).
If you are an employee on a business trip, you will learn how your working days outside the company are paid.

What is a business trip

According to the Instruction on Business Trips within Ukraine and Abroad, approved by Ministry of Finance Order No. 59 of 13.03.1998 (hereinafter - Instruction No. 59), a business trip is an employee's journey to another locality for a certain period to perform work assignments.

What documents are required for formalizing a business trip

A trip is considered a business trip if there are documents confirming its connection with the main activities of the enterprise.
The main documents required for formalizing a business trip are:

• order for the employee's business trip
• estimate of business trip expenses
• employee's report on completed work assignments
• advance report (in the form approved by Ministry of Finance Order No. 350 of 10.03.2016) with documents confirming the employee's expenses during the business trip.

What you need to know to calculate business trip payments

Often in practice, an accountant calculates business trip payments based on the daily wage, just like payments for other working days at the enterprise. This seems to make sense, as working days are indeed worked, albeit outside the main workplace.
In fact, to correctly pay an employee for business trip days, two values should be compared, and the larger one should be chosen:

1. Daily wage
2. Average daily wage.

The norm for paying business trip days at a rate no lower than the average daily wage is stipulated in Article 121 of the Labor Code.

Daily wage is calculated based on the salary provided for by the employment (collective) agreement. This is the usual salary for a working day that an employee would receive if not on a business trip.
Average daily wage is calculated a little more complexly.

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How to correctly calculate average earnings

The formula for calculating the average daily wage is simple:

However, there are some nuances in this seemingly simple calculation.

When calculating the average wage, all amounts of accrued wages according to legislation and the terms of the employment (collective) agreement are taken into account, except for the following:

• 17 types of payments approved by paragraph 4 of Procedure No. 100
• payment for annual and additional vacations, business trips, temporary disability benefits, and other payments calculated based on the average daily wage.

Here, in practice, errors also quite often arise. If sick leave and vacation pay are simply not included in the calculation, then with business trip payments, we analyze. If calculated based on the daily wage - include in the calculation, if based on the average daily wage - no.

Are bonuses included in the calculation of average daily wages

Yes, bonuses are included in the calculation of average earnings. The simplest case is "month-to-month" bonuses, when the bonus for the current month is paid in that same month. In such a case, bonuses are included in the calculation of the average daily wage in their full amount.
Accountants need to be cautious with bonuses and other payments that are accrued for two months or a longer period. Changes to Procedure No. 100 affected the mechanism of their consideration when calculating the average daily wage, and moreover, fundamentally changed it.
When calculating average earnings, bonuses (payments) for 2-12 months are taken into account in the part corresponding to the number of working days worked in the calculation period (months) for which such bonuses and other payments were accrued. That is, the distributed amounts of bonuses should be included in the calculation of the average daily wage specifically for those months that fell within the calculation period.

Business trip payments in 2021 can be examined in more detail with an example.

Example of business trip payment in 2021

Suppose that in April 2021, an employee worked all working days (22), but 5 of them were on a business trip.
The employee's official salary in February-April 2021 is UAH 10,000.
In March, the employee was accrued a bonus for the 1st quarter of 2021 in the amount of UAH 7,500.
The calculation period for determining average earnings is the two months preceding the business trip, i.e., February-March 2021. For these months, the employee fulfilled the monthly work norm and was accrued salary according to the official salary.
It is necessary to calculate the employee's salary for April 2021, taking into account the five days of the business trip.
The calculation algorithm is given below.

How to calculate daily wage

How to calculate average daily wage

Determining salary for the period February-March 2021

Determining the number of working days in February and March 2021

Calculating the employee's average daily wage

Comparing the employee's average daily and daily wages: the average daily wage is higher than the daily wage (UAH 599.14 > UAH 454.55)

Calculating payment for 5 days of business trip (calculated based on the employee's average daily wage)

Determining salary for April 2021

Verification. The difference from the usual monthly salary is UAH 10,722.97 – UAH 10,000 = UAH 722.97. This difference arises due to the different payment for 5 days of business trip: (UAH 599.14 - UAH 454.55) × 5 working days = UAH 722.95. The difference of 2 kopecks is due to rounding.

If monthly bonuses for the previous month or bonuses (rewards) for 2-12 months are accrued in the current month, it is necessary to recalculate the average daily wage.
That is, if bonuses (rewards) for the months included in the calculation period (in the example above - February and March), for example, an annual bonus, are accrued later – it will be necessary to recalculate the amount of the average daily wage and, accordingly, review the payments to the employee for the business trip days.

However, to avoid mistakes in such meticulous situations with the proportional inclusion of bonuses in the calculation of average earnings with its potential adjustment, we suggest contacting our company's specialists. They will be able to select an individual option for accruing bonuses (other rewards) for your enterprise, which will reduce the labor intensity of such calculations and significantly simplify your accountant's life. Or you can simply entrust this difficult task to us!

Key points about business trip payments in 2021

1. An employee's business trip days are paid based on one of the larger values – daily or average daily wage, but not lower than the average daily earnings.
2. The calendar period for calculating the average daily wage is the last two months preceding the month in which the business trip occurred.
3. At the end of 2020, the mechanism for including bonuses in the calculation of average daily earnings was updated. As of 12.12.2020, bonuses (rewards) are included in the calculation in amounts proportional to the working days worked for those months that fall within the calculation period.

If you have questions or need expert assistance from specialists in accounting services, please contact us, and we will promptly prepare a consultation.