How to build your first corporate credit card policy

workers sat at a desk with their laptops

When your company is five people huddled around the same table, you probably trust that everyone is doing the right thing for the company when they pay with their corporate card. But as your office gets bigger, and new faces show up in the room, things can get complicated. What might have been a benign mistake on a corporate card for one person can quickly escalate as you give more employees access to corporate cards. 

While one employee takes economy while flying, another might try to book first class on their flights. One employee may be cautious about their meal spending, while another might be a little bit more liberal in their outings. That kind of behavior is a problem as you scale up for pure expense purpose—and you especially don’t want employees to start resenting each other for their spending.

Having a robust corporate card in place before all these things happen can head off not only a lot of resentment but a lot of headaches. Going through and fixing expenses costs your company a lot of money—both in raw dollar value and in the time it takes for your accounting team to handle those expenses. 

When you’re a small company, you can rely on everyone in the room being responsible about spending. So you could call that something like a principle-based corporate card policy. But as you get bigger, more people come into the room—and that means there are more preferences and more personalities. So you have to start instituting hard rules as you get bigger and grow more distributed.

Let’s start with the most frequent corporate card purchases: travel and entertainment, or T&E.

How to build your first T&E corporate card policy

Your company will, at some point, have to pay for travel. Whether that’s sending employees around the world or flying candidates in for interviews, they’ll probably be putting those expenses on their corporate card. But as more and more people start traveling—say you’ve started ramping up your sales—you’re going to have to deal with more and more different travel expectations.

You can get around this by setting explicit guidelines on how employees should use their corporate cards when traveling or when paying for any outings. For example, you’ll want to ensure employees clearly understand some of the necessary restrictions they have on spending, like hotel costs or flights. You might set rules that are somewhere along the lines of:

  • Your hotel costs must fall under a certain amount
  • Your flight costs must fall under a certain amount
  • Employees are only allowed to spend a certain amount on meals when traveling (and are encouraged to be frugal, instead of maxing out their per diem every day)
  • Overtime transportation only qualifies in these specific periods

However, good behavior and spending culture are just as important as following the rules. You don’t want to end up with a problem like the “8:01 p.m. crowd,” where people wait right until the cutoff to take an Uber home and count it as overtime travel—and therefore covered by your corporate card policy. You have to ensure that everyone has bought into that culture. Over time, you’ll have to build an even more robust system to cover more edge cases within your policy.

Besides, you want to ensure early on that employees are rigorous when documenting. For example, you’ll want employees to submit full receipts for their ridesharing spend and potentially include a screenshot of the route that they took. (You might not have to go that far, but you’ll still want to ensure you’re building a culture that uses corporate cards responsibly).

As your company grows, you’re going to experience more and more edge cases. So that whole section on restricted spending is going to grow—and you’ll really just have to get used to that. Employees will run into unique problems, and sometimes the answer is using the corporate credit card even if it isn’t within the policy. 

The main thing you want to ensure is that you are saving your company time, which will literally have a dollar value based on how much time your team spends fixing rogue expenses. Keeping those problems off your accounting team’s plate means they can do more to empower employees as the company grows.

What about corporate card policy for department spending?

Making policies around vendor spend should be considerably less complicated than reigning in employee misuse of corporate cards. After all, you’re just trying to ensure that departments are only spending what they need to be successful. But it’s important that you ensure employees are paying for the services they need in the right channels, instead of across multiple different channels (like card and ACH) that might make things more complicated—even if they’re approved purchases.

It’s generally good to have a department-level card that you assign for vendor spending. That can include spending on Facebook ads, or maybe paying for subscriptions. Issuing virtual credit cards for departments is one way to ensure you have visibility into their spending and also control the amount of money they’re deploying.

You still don’t want it to be a free-for-all. You might have employees coming in that are used to a certain kind of workflow and start charging hundreds of dollars on a new SaaS subscription. Avoiding organization SaaS creep is a good thing in general. Still, it can quickly add up as you continue to grow and add new employees—especially some who may be accustomed to different workflows.

What are some of the tax implications of a poor corporate card policy?

You need to have a robust corporate card policy in place to encourage good behavior, but there are also tax implications for both the employee and the company if things start to get out of hand.

Let’s say, for whatever reason, your corporate card policy covers massages during travel. Employees are allowed to expense a massage while traveling, and you just tell everyone to use their best judgment. (You probably shouldn’t do that anyway, but you might have a good reason for it.)

Then, you end up with one employee that ends up spending thousands of dollars on massages. The IRS comes and does an audit on your expenses, looks at this employee’s very liberal deployment of company funding for massages, and decides that it’s not a business tax expense. Instead, it’s treated as wages to the individual.

Not only does this impact your business, it may also affect the employee. If the IRS claims that the spend qualifies as wages, someone (either the company or the individual) will have to pay the taxes related to them— as well as the likely penalties or interest on the balance. So, as a result, you end up with a massive headache, and a very unpleasant surprise come tax season for both you and your employee.

In the end, an effective corporate card policy is as much about encouraging good behavior and building a good culture around spending as it is about protecting your company—and your employees—from bad spending. It’s only going to get more complicated, so the earlier you set the foundation the better.

Photo credit: Helloquence on Unsplash

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