A cash allowance is the allotted amount of money that employers will give employees up front to cover business expenses, such as meals, travel costs and office supplies. Cash allowances are simpler for accounting than collecting receipts and reimbursing small or frequent expenditures. Employees typically prefer cash allowances because there is no waiting for reimbursements, and it is more practical to pay for meals and taxis with cash rather than a corporate credit card.
Most companies keep a small amount of cash on hand for cash allowances, even if they do not regularly make purchases. It can be used to pay for working lunches, taxis home after late meetings or other incidental expenses such as emergency printer cartridges. An employee who travels regularly for their job may have fixed amounts of cash allotted for meals that may accompany a mileage allowance for their car. If the employee prefers to have a more expensive meal, they must pay the difference from his or her own funds. Likewise, if the employee prefers a lighter meal, they can pocket the difference.
The fixed nature of a cash allowance makes accounting easier. The amount is offered up front, so it can be entered into the books immediately. No receipts are required for documentation, since it is the employee’s prerogative whether or not to spend the money. This reduces paperwork as well as volatility since the employee cannot go over budget with a cash allowance, thus reducing general expenses as well. Offering cash to an employee usually is appreciated, as it can boost morale and help validate an employee’s worth.
A cash allowance is considered one of the perks of jobs that require a lot of long hours and traveling. Employees enjoy the convenience of cash, such as reducing the complexity of inviting clients out for lunch. Likewise, most employees prefer not to spend their own money on business expenses or their time chasing down small reimbursements. Small companies that do not have much storage space may use cash allowances so that employees can purchase office supplies when necessary, which can really add up over the months.
Employees pay taxes on cash allowances, just like other forms of income. In some countries they may be deductible as business expenses. A capital cost allowance may be applicable, which is depreciation from the original value of the purchase, depending on what was purchased with the cash. Other countries allow a religious group to pay for one or more member’s living space with cash, and to deduct this value as a parsonage allowance.