Should You Reimburse Your Employees or Give them a Company Card?
Eventually, you get to a point running a small business where you have to entrust your employees with a little more. You can only handle so much, and when your business does well and expands, you have to delegate certain tasks to others. Hopefully, by this point, you’ve found employees that you can rely on. However, while you might feel comfortable entrusting them with crucial, high-pressure tasks, at what point do you trust them with your company’s money?
Your employees inevitably have to make purchases for your business, whether it’s for travel or soap for the bathrooms, and you can’t be there every time to run the company credit card. However, allowing your employees to make these purchases for you can be a complicated issue. Do you pay them back later, or give them a company credit card? Whatever strategy you adopt, you’ll have some tough decisions to make.
The first option you have is to let your employees foot the bill with their own cash initially, and then reimburse them later. This might seem like an easy solution, but there are a couple things that you should consider before picking this one outright:
- Are the purchases that you’re asking your employees to make within their means? Even if you are reimbursing them, that won’t mean much if you’re asking your employee to make a $300 purchase when they only have $100 at their disposal.
- Do you have a standard turnaround time? Your employees might be a little upset if it takes you two weeks to return their money.
- What system do you have in place to keep track of your finances and verify their purchase?
While the first two are important considerations, you can deal with those relatively quickly. Evaluate the spending needs of your company and establish an agreed-upon turnaround time for reimbursements. However, the third point is a little trickier.
In order to keep track of your finances, you’ll have to require receipts of purchases made by employees. It’s a good idea to keep a record of all expenditures, but the IRS mandates that you keep track of all that cost $75 or more. You do have some discretion here, but the more precise you are, the better.
Your employees will have to file expense reports for review. Assuming that those check out, you should reimburse the employee directly through accounts payable or payroll. Writing them a personal check and then trying to account for that can be unduly complicated. It usually doesn’t matter if they are reimbursed through payroll or not; it is listed separately and therefore isn’t taxed.
A Company Credit Card
If your employee is pushing for a company credit card, this shouldn’t immediately set off alarm bells. They probably don’t want to deal with the inconvenience of reimbursement any longer, or maybe they are looking to prove that they’re responsible. Either way, it is not necessarily a sign that they want to scam you. Issuing them a company card could be convenient for your business and staff.
More cardholders can translate into more perks from your credit card. More points will be racked up, you’ll earn more cash back, or even travel miles. You’d be paying for these expenditures anyway, so why not include them on the card and gain the extra benefits? You still want to watch for any inappropriate employee use, so make sure that you’re monitoring your statements. Many business credit cards will allow you to set spending limits and easily access their purchasing history, so take advantage of those features.
Arrange a meeting with the employee, and set up a business credit card use policy. This details what your employee will use the credit card for, and will depend widely on the needs of your business and that employee’s role within the company. An office manager, for example, might need to rush off and buy supplies on short notice, whereas the expenses of another employee might be more predictable or have more leeway. Recognizing this is important when considering if you want your employees to get your approval before purchases.
Either way you decide, to reimburse your employees or allow them a company credit card, there are a lot of little decisions you have to make after that as well. Employees spending company money is a complicated issue, because every business owner has a fear of being taken advantage of. However, as long as you put your trust in the right people and properly vet them, that spending can launch your business into successful growth.
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Dayton is a chronic Wikipedia addict, which is detrimental to her social life but stellar for her writing. She resides in Boise, ID, surrounded by her own frantic outlines, highlighted encyclopedias, and potatoes. The latter was not by choice.