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What is a Cash Allowance?

By D. Poupon
Updated May 16, 2024
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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.

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Discussion Comments

By julies — On Jul 11, 2012

I agree that a cash allowance would be really helpful in a lot of situations. My husband gets reimbursed for his mileage with his job, and he has to wait for a reimbursement check once a month.

He puts all of his fuel expenses on a personal credit card and some months this is over $1000 in expenses for gas. Thankfully the reimbursement check comes before the credit card is due.

I can see how something like reimbursing for mileage would be hard to use a cash allowance for since it would vary so much. His company does give him a cash allowance for a hotel room if they are more than 100 miles from home and have to spend the night.

That really does make the accounting much simpler for everyone involved in the process, and it is nice that you don't have to wait for your money.

By honeybees — On Jul 10, 2012

I wish my company would give us some sort of cash allowance. We always have to turn in receipts for expenses like that and then wait for them to reimburse us with a check.

They don't give us access to a company credit card to use either, so this can get pretty frustrating if I am doing much traveling.

I keep hoping they will make some changes and give us a cash allowance or a credit card. The whole process would be so much simpler for everyone involved, but I haven't seen it happen yet.

By myharley — On Jul 09, 2012

I am the office manager for a small business and am given access to a cash allowance to spend on necessary office supplies. I never know when something is going to come up where I need to purchase something right away.

I don't have time to have something shipped to me or wait for someone to cut me a check. Using my cash allowance is a life saver when it comes to situations like this.

Once when I was in the middle of printing out documents for a large project that needed to be submitted that same day, I ran out of toner. I was able to make a quick run to the store, purchase what I needed with my cash allowance, and continue on with my work.

It also helps knowing that my boss trusts me with this privilege. He knows that I won't abuse it and only use it when necessary.

By sunshined — On Jul 09, 2012

I have to travel a lot for business and really enjoy the convenience of using a cash allowance. It is nice that I don't usually have to worry about turning in receipts and waiting for a reimbursement.

One big advantage for me is that I am given so much a day when I travel out of town for meals. I am a light eater, especially when I am on the road, so this always ends up being a little extra money for myself.

I have some co-workers who will spend every penny of the cash allowance given to them when they eat out. Sometimes they even go over the amount allowed and have to come up with the rest of it from their own pocket.

I would much rather eat light, but sensibly, and use the extra money for something else.

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