Easy Tracking of Employee Spending
If you have employees, chances are they?re spending your company?s money. How you track these expenditures impacts what you may owe at tax time, your business capacity to manage its cash, whether a tax audit may go smoothly, and other important aspects of your business. So how do you track the money employees spend on hotel bills during a business trip, filling up a gas tank on the way to visit a client, or purchasing supplies?
Here are the three most common methods of tracking and accounting for employee spending. Compare them to your current system and see how you stack up.
Company card
Employee reimbursement
Cash advance
Company card
What it is:
A corporate credit or charge card1 is distributed to the employee; the monthly charges are billed to the company. Corporate cards can allow you to set limits — for example, so they can only be used with particular vendors, for particular goods or services, or for charges only up to a certain amount. They are most commonly used for travel and entertainment expenses, but are also practical for incidental expenses (such as office supplies or shipping charges) that previously fell under the category of "petty cash".
Advantages:
• Easy expense tracking: Expenses can be tracked via a single, consolidated bill that can be sorted by employee name, type of expense, or specific charge. This can streamline expense reconciliation and reimbursement.
• Clear spending records: Card statements and reports can provide the records your business needs to help manage cash flow, handle tax filing, or support an audit.
• Employee morale: Employees appreciate the convenience of their own card. They can separate personal and business expenses, simplifying record keeping while eliminating the need for expenses to be reimbursed after a trip.
• Rewards points: Having cards for employees can speed up accumulation of bonus points and other incentives.
• Less paperwork for company and employee: With the majority of expenses going on a card, there is reduced need for reimbursements via manual systems.
Disadvantages:
• Not every type of expenditure can be put on a card, so a supplemental system is required.
Tip:
Streamline your record keeping by using electronic management reports, such as American Express’ Expense Management Reports, to sort employee expenses by cardholder, expense category, amount, date, etc.
Employee reimbursement
What it is:
In a reimbursement system, an employee pays for his or her own business expenses, and is paid back by the company after filing an expense report with receipts and other documentation
Advantages:
• Usable by everyone: Any company employee can be given a printed or electronic expense form for out-of-pocket reimbursement. Not every one is at a level or tenure to be given a card. • Flexibility: Even if most employees have company cards, a supplemental system is needed to reimburse incidentals and other disbursements made where cards are not accepted (tips, cabs, newsstands, coffee counters).
Disadvantages:
• Reimbursement processing: Entries need to be tracked against receipts for accuracy. Checks need to be cut and dispensed, and replaced if lost.
• Burden on the employee: Employees need have enough available credit line if using a credit card; they may have to wait until a reimbursement check arrives before paying off their outstanding balance (i.e., ?float the company?). Those with extensive receipts have a lot to keep track of.
Tip #1: The more detailed the expense form, the easier it may be for your company to track spending for tax reporting and other purposes. Speak with your tax advisor about the best way to develop your form.
Tip #2: Be sure you ask employees to submit their reports in a timely manner. Generally, companies require employees to file their reports within 60 days of a trip. This can help in your record keeping and help ensure you?re able to manage these costs properly.
Cash advance
What it is:
The business writes an employee a check to cover anticipated expenses, and the employee returns any unspent funds.
Advantages:
• Employee float: The advantage of this system accrues to the employee who receives up-front cash.
Disadvantages:
• Cash flow: The company has to pay out money before expenseas are incurred.
• Collection: Since employees must return money they don?t spend, you not only have to track expenses accurately, but have to collect unspent funds.
• Employee burden: As with the reimbursement system, those with extensive receipts have a lot to keep track of.
Tip: If you use this method, consider a "non-accountable" plan, where expense advances are given to employees as checks separate from payroll, with those advances counting as compensation for the employee. These kinds of payments are included in employee W-2 forms, and they are subject to employment taxes such as withholding and FICA, but your company can write off 100% of the cost of these advances. While each method has advantages and disadvantages, the important consideration is whether your system of tracking employee spending is it effective for both you and your staff. If so, you are on top of employee spending. If not, easy changes in process can make a big difference in office efficiency.
Source: http://www10.americanexpress.com
Here are the three most common methods of tracking and accounting for employee spending. Compare them to your current system and see how you stack up.
Company card
Employee reimbursement
Cash advance
Company card
What it is:
A corporate credit or charge card1 is distributed to the employee; the monthly charges are billed to the company. Corporate cards can allow you to set limits — for example, so they can only be used with particular vendors, for particular goods or services, or for charges only up to a certain amount. They are most commonly used for travel and entertainment expenses, but are also practical for incidental expenses (such as office supplies or shipping charges) that previously fell under the category of "petty cash".
Advantages:
• Easy expense tracking: Expenses can be tracked via a single, consolidated bill that can be sorted by employee name, type of expense, or specific charge. This can streamline expense reconciliation and reimbursement.
• Clear spending records: Card statements and reports can provide the records your business needs to help manage cash flow, handle tax filing, or support an audit.
• Employee morale: Employees appreciate the convenience of their own card. They can separate personal and business expenses, simplifying record keeping while eliminating the need for expenses to be reimbursed after a trip.
• Rewards points: Having cards for employees can speed up accumulation of bonus points and other incentives.
• Less paperwork for company and employee: With the majority of expenses going on a card, there is reduced need for reimbursements via manual systems.
Disadvantages:
• Not every type of expenditure can be put on a card, so a supplemental system is required.
Tip:
Streamline your record keeping by using electronic management reports, such as American Express’ Expense Management Reports, to sort employee expenses by cardholder, expense category, amount, date, etc.
Employee reimbursement
What it is:
In a reimbursement system, an employee pays for his or her own business expenses, and is paid back by the company after filing an expense report with receipts and other documentation
Advantages:
• Usable by everyone: Any company employee can be given a printed or electronic expense form for out-of-pocket reimbursement. Not every one is at a level or tenure to be given a card. • Flexibility: Even if most employees have company cards, a supplemental system is needed to reimburse incidentals and other disbursements made where cards are not accepted (tips, cabs, newsstands, coffee counters).
Disadvantages:
• Reimbursement processing: Entries need to be tracked against receipts for accuracy. Checks need to be cut and dispensed, and replaced if lost.
• Burden on the employee: Employees need have enough available credit line if using a credit card; they may have to wait until a reimbursement check arrives before paying off their outstanding balance (i.e., ?float the company?). Those with extensive receipts have a lot to keep track of.
Tip #1: The more detailed the expense form, the easier it may be for your company to track spending for tax reporting and other purposes. Speak with your tax advisor about the best way to develop your form.
Tip #2: Be sure you ask employees to submit their reports in a timely manner. Generally, companies require employees to file their reports within 60 days of a trip. This can help in your record keeping and help ensure you?re able to manage these costs properly.
Cash advance
What it is:
The business writes an employee a check to cover anticipated expenses, and the employee returns any unspent funds.
Advantages:
• Employee float: The advantage of this system accrues to the employee who receives up-front cash.
Disadvantages:
• Cash flow: The company has to pay out money before expenseas are incurred.
• Collection: Since employees must return money they don?t spend, you not only have to track expenses accurately, but have to collect unspent funds.
• Employee burden: As with the reimbursement system, those with extensive receipts have a lot to keep track of.
Tip: If you use this method, consider a "non-accountable" plan, where expense advances are given to employees as checks separate from payroll, with those advances counting as compensation for the employee. These kinds of payments are included in employee W-2 forms, and they are subject to employment taxes such as withholding and FICA, but your company can write off 100% of the cost of these advances. While each method has advantages and disadvantages, the important consideration is whether your system of tracking employee spending is it effective for both you and your staff. If so, you are on top of employee spending. If not, easy changes in process can make a big difference in office efficiency.
Source: http://www10.americanexpress.com
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