Employees and Company Credit Cards – What’s the Charge?

If you provide your employees with a company credit card, eventually someone is going to use it for a personal expense. In many cases, the employee is not attempting to defraud the company. But in other cases, it can be intentional. Either way it can create potential problems for your business.

Several years ago, one of my clients issued her bookkeeper a company credit card. After a period of time, the bookkeeper regularly used the company credit card for personal purchases and did not notify the employer or reimburse the company. As the balance on the credit card increased, the bookkeeper began making partial payments on the increasing balance. My client completely trusted her bookkeeper, and never reviewed the credit card statements prior to payment, and the balance became quite high without her knowing it.

Unfortunately, it is not uncommon for small business owners to completely trust (or even be friends) with their staff. They may trust them so much that they loosen internal controls within the company, and may not realize there is a problem until it is too late. Even though an employee may use a company credit card for personal use, the company is responsible for the employee’s personal charges because the card is a corporate card or the employer is the primary cardholder.

It is vital to for a business owner to review credit card statements and other bills for personal charges and collect the money from the staff member as soon as possible. If the employee cannot pay the monies back by cash or check right away, a receivable should be created for the employee until the charges can be deducted from their paycheck. Do not let an unreasonable amount of time pass before collecting reimbursement. If that occurs, those monies may be considered taxable wages and you may be liable for unemployment and other employer related taxes.

Another problem is when an owner uses the corporate credit card for personal expenses. According to the National Federation of Independent Businesses, 49% of small business owners used personal credit cards for business expenses in 2011, up from 42% in 2009. One of the main reasons business owners combine business and personal expenses on one credit card is to increase their reward point perks on one credit card. Co-mingling business and personal credit card expenses costs you more money in bookkeeping costs or tax preparation fees when someone else has to record the transactions for you.

If you are operating as a single member LLC, keeping business and personal transactions separated can provide you with some level of protection. In the event you are sued, if you have co-mingled too much of your personal and business expenses, it is possible to lose the protection you were looking for when you set up your LLC, and be treated as a sole proprietor. Other income tax complications may come into play.

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About the Author:

Kimberly Shannon, President – Off-Site Business Services, Inc.

Started in 1993, Off-Site Business Services, Inc. works with small and medium-sized businesses in the South Suburbs of Chicago and across the United States. She has been a QuickBooks ProAdvisor since 2007, with additional certifications in QuickBooks Enterprise, Point of Sale and QuickBooks Online.

She is a member of the American Institute of Professional Bookkeepers, the National Association of Professional Bookkeepers, and the Orland Park Chamber of Commerce.