If you’ll forgive me, I’m going to get pretty geeky today. You probably didn’t realize that there are actual pros and cons to expense reimbursement for employees, etc., or using a company cc. Oh, my Olathe, KS readers, I’m going to take you down a little rabbit hole today, yes I am.

Now, let’s dive into handling business expenses paid by employees.

Accounting On It’s Thoughts on Reimbursement vs Company Cards

“The secret of getting ahead is getting started.” – Mark Twain

You gotta spend money to make money. All businesses need supplies, materials, and services to help produce their own goods and services.

Depending on the nature of your business, your employees may need to make independent purchase decisions on a frequent basis. Empowering your employees to make these purchases on their own can make your business run much more efficiently. After all, do you really need to be involved in the decision to buy a new toner cartridge for the printer?

Common expense types your employees may need to pay for include:

  • Office supplies
  • Postage
  • Parking and tolls
  • Meals
  • Small tools
  • Small quantities of parts and materials

All of these expenses, and many others, are necessary to complete tasks required to run your Olathe, KS business. The critical question you need to address upfront is this: Will you reimburse employees for expenses they pay or provide them a company credit card to pay such expenses?

This decision comes with important accounting consequences, and you as the business owner need to know the pros and cons of each method.

Time Savings

On the surface, issuing employees a company credit card may seem to be the better option in terms of saving time. With a credit card, there are no expense reports to be completed, no reimbursement checks to be cut. Sounds good, doesn’t it Olathe, KS friends?

But think about this: Do you need to allocate expenses to specific clients? If your employees are, for example, purchasing parts and materials needed to complete a job for a customer, then those credit card charges ultimately need to be assigned to that customer’s account for invoicing. This means somebody has to go through the credit card statements and reconcile them against receipts and job orders. Oops! There went the time savings.

If you don’t need to do this for tracking expenses back to specific customers, then a company credit card can certainly save a lot of time. Otherwise, having employees complete expense reports and reimbursing them for business expenses they paid out of pocket may actually be faster and easier for your business.

Trust Issues

When you provide a company credit or debit card to an employee, you’re placing a significant amount of trust in that person. You need to have faith in your employees that they won’t go on a wild Amazon shopping spree.

If this is a concern, running a reimbursement program might be the better way to go. I’d say this is particularly true if you happen to have a fair amount of employee turnover, or if you operate multiple locations inside and outside of the area wherein you don’t necessarily know each and every employee. As your business grows, you won’t have a direct connection with every single team member, which can exacerbate trust issues.

Accountable Plans

If you choose reimbursement for expenses paid out of pocket, you’re going to want to set up what the IRS calls an accountable plan. By running your reimbursement arrangement as an accountable plan, your employees won’t need to worry about reimbursed funds ever being treated as income to them by the IRS, and there are no consequences for them. In addition, the accountable plan helps ensure the deductibility of the business expenses for you.

In creating an accountable plan, you’ll:

  • Set specific rules about what types of expenses are eligible for reimbursement
  • Create a standardized expense reporting form
  • Set timelines for reporting expenses and reimbursements
  • Stipulate the requirements for substantiation (e.g. paper receipts)

Using an accountable plan instead of company credit cards for each employee can help avoid some of the issues mentioned earlier. You can more closely track the payment of sales to avoid future surprises, quickly assign expenses to customer jobs for faster invoicing to the customer and eliminate any potential trust issues.

The trade-off? Time and convenience.

If you’re debating this decision, we can analyze the types of expenses your Olathe, KS business incurs to help you with making a decision. And also, if you decide to set up an accountable plan, we can help you with that process, too. Let’s talk more about it.


Betsy Teegardin
Accounting On It