Advances paid to employees who are being sent on foreign business trips must always conform to the Labor Code. At the same time, though, the company must account for travel allowances in accordance with the applicable accounting rules and internal policies.
Pursuant to Sec. 183 (1) of the Labor Code, employers must provide employees whom they send on a business trip with an allowance in an amount that will cover the anticipated cash payments on the trip (subject to a different arrangement). In the case of foreign business trips, this allowance may be paid in the currency of the country to which the employee is being deployed.
However, when billing the assignment certificate (or secondment form – i.e., the document used to document the circumstances of the employee’s business trip), one needs to keep in mind that a difference arises between the fx rate applied to the conversion of the employee’s claim for reimbursement of their travel expenses, on the one hand, and the fx rate applied when billing the business trip (or, as it were, the travel expenses) as such.
This is because the settlement of the allowance (by paying out the shortfall or receiving the excess by which the allowance differed from the actual expenses on the trip) is not an accounting transaction.
From the point of view of the employee, the fx rate that will be applied to determine the amount of the travel expenses (if the allowance was granted in foreign currency) is the applicable fx rate on the day on which the allowance was paid. It is this exchange rate that will be used to settle the assignment certificate (used to send the employee on the business trip) vis-a-vis the employee.
From the point of view of the company as an accounting entity, the key moment for posting the amount of travel expenses is the moment in which the accounting transaction has been consummated. However, the precise definition of when that happens is given nowhere in the law. The company thus makes this decision for itself, in an internal guideline or policy.
Conceivable cut-off dates could include:
- the day on which the employee returns from their business trip,
- the day on which the employee presented the employer with the vouchers (receipts) for accounting purposes,
- the day on which the billing of travel expenses is submitted to accounting,
- the day on which the allowance is being balanced (i.e., the employee receives payment of the shortfall by which the allowance did not suffice to cover the expenses, or else returns to the company the excess payment, if any).
However, the most appropriate and suitable solution appears to stipulate the last day of the business trip as the day on which the accounting transaction has been consummated.
It follows that, for the purpose of settling accounts with the employee, the fx rate is that which applied on the day on which the allowance was paid to them – but the journal entry will be made using the fx rate applicable on the day of the accounting transaction. The allowance will thus be accounted for at a different exchange rate than the final billing, leading to an exchange rate difference on the part of the company (employer) as an accounting entity.