Reimbursement Agreement

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Reimbursement Agreement

A Brief Introduction About the Reimbursement Agreement

Employer and employees enter into such agreements to specify which costs associated with the job performed by the employee shall be reimbursed by the company. There are different types of such agreements depending on the nature of the cost being reimbursed by the company.

In case of an employee training reimbursement agreement, the employer and employee enter into an official contract where the employee either needs to remain with the company for a certain period or compensate the employer from the salary or returns any material or other item received during training.

For a tuition reimbursement agreement, the employer can reimburse in part or full the tuition costs incurred by the employee. When the bank issuing the letter of credit also finances it, paying the beneficiary after the necessary documents are provided by the beneficiary but charge the applicant later when the goods are sold, a letter of credit reimbursement agreement is entered into.

With these agreements, the employer can control employee costs by setting certain limits for expenses incurred by the employee while performing the job. The agreement will mention whether the reimbursement will be on an hourly basis or at a flat rate.

Who Takes the Reimbursement Agreement – People Involved

This agreement is entered into between two parties, where one party needs a particular task to be executed and agrees to reimburse the other party for the costs incurred in the performance of the task.

The value to be reimbursed is mentioned in the agreement.

Purpose of the Reimbursement Agreement – Why Do You Need It

Let us take the example of a training reimbursement agreement, where the employer provides the employee with specialized training at a specific cost for improvement of skills. Without an agreement, it is possible that right after availing of the training, the employee gets a lucrative offer and decides to quit the company. So, the company does not benefit from the training provided to the employee, and the entire expense is a loss.

When there is an agreement, the employee will need to fulfill certain terms and conditions before being sponsored by the employer for training. The employee has to either remain in service for the entire period of the contract failing which, only a part of the training cost will be borne by the employer. The employee will have to bear the rest of the cost.

Contents of the Reimbursement Agreement – Inclusions

The agreement should be comprehensive and include the costs which fall under the reimbursement category.

The information to be included in this agreement are:

  • The effective date of the agreement
  • The parties to the contract and their identity
  • The nature of expenses being reimbursed
  • The term for which the reimbursement will be valid
  • The location where such expenses are to be incurred
  • The quantitative reimbursement that will be allowed
  • Duties and responsibilities of both parties
  • Provisions for indemnification by the parties to the agreement
  • A partial validity clause where if one invalid clause does not render the entire agreement invalid

How to Draft the Reimbursement Agreement

Points to Consider While Preparing the Agreement

You can refer to a cost-reimbursement contract example while drafting such contracts. However, the sample needs to be modified to suit your requirements. The points you need to keep in mind are:

  • Eligibility for participation: Both the parties to the contract need to be over the age of 18 to be considered competent to contract
  • Consideration being offered: The consideration being paid and the basis on which the consideration will be calculated. The costs being reimbursed by the employer and whether it will be on an hourly rate or flat fee
  • Terms of the contract: The terms of the contract should be such that the interests of both parties should be protected
  • Confidentiality clause: Sensitive data should not be leaked to third parties
  • Termination clause: The contract tenure and notice period to be served for termination

Negotiation Strategy

The costs which are considered for reimbursement in a reimbursement agreement should be revealed to the employee by the employer so that the employer can study the entire agreement before making a decision. Both parties can settle on the amount to be reimbursed for avoiding any conflicts in the future.

Benefits & Drawbacks of the Reimbursement Agreement

Here are the benefits of a reimbursement agreement:

  • Protection of interests of both parties to the agreement: The employer benefits from the productivity of the employee and reimburses the costs. The employee has reimbursed the expenses incurred while performing the job
  • The employee will be penalized if he or she does not fulfill the terms of the agreement
  • The employer can control costs and thereby improve profitability

Here are the drawbacks of a reimbursement agreement:

  • Higher employee turnover: The employee might complete the training and leave the company for a better offer
  • Employer losses: The employer will suffer losses as they will have to hire another employee and provide the same training with no guarantee that the employee will stay with the company

What Happens in Case of Violation

Depending on the remedies for violation included in the reimbursement agreement, the following are payable to the party affected by the violation:

  • Monetary Damages: This is the payment that the employer will receive from the employee for leaving the company before completion of the service contract leading to losses for the employer
  • Restitution: The employee will have to reimburse the employer for the training costs incurred by the employer and return all documents related to the training
  • Reformation: In this case, the court will reform or change the contract if they find that the reimbursement to the employee is inadequate

It is important to remember that certain clauses are important for a valid reimbursement agreement. To ensure that the interests of both parties are protected, there should be a dispute resolution clause, provisions for termination of the contract, confidentiality clause, and preparing the contract based on applicable laws.