Should I Give a Business Debit Card to an Employee?
Running a small business is a challenging but rewarding endeavor. Every day business owners must make choices that impact their companies.
Sometimes you must make decisions about the products and services your company sells. Other times, you must make hiring or firing decisions about employees.
More minor decisions often don’t seem as important. One decision could have an outsized impact on your company if things don’t go as planned.
The simple question “Should I give business debit cards to my employees?” could make your life easier or cause financial stress.
Before you make a decision, it’s essential to look at all sides of the question. Here’s what you should know.
Should I Give Business Debit Cards to My Employees?
A debit card gives employees direct access to spend money out of your business’ checking account.
An untrustworthy or deceptive employee could quickly put your business’s finances in a bad position by abusing access through a debit card.
That said:
Others will argue that you should trust the employees you decide to hire to work for you. If they can work for your business, they should be able to be trusted with a debit card.
Unfortunately, the answer isn’t that simple. Let’s look at the benefits and drawbacks of giving employees access to a debit card.
Benefits
Giving trustworthy employees access to a business debit card could help your business in several ways.
Sign of trust
It shows employees you trust them and gives them autonomy to do their job.
This way, employees can make a purchase when necessary rather than ask permission from a higher-up to buy something for them.
Saves you time
This can also save management time by avoiding these interactions. You should still require employees to submit receipts and justify all business expenses, though.
Avoids debt
Business debit cards can also save a company money by not taking out debt to make purchases.
Debit cards withdraw money from your business checking account. They don’t add to a credit card balance that could be charging costly interest on your balance owed.
Drawbacks
Giving your employees business debit cards isn’t always a smart move.
In fact, it could be a terrible decision for many businesses.
Overspending
While you should trust the employees that work in your business, not all companies run the same way. Some businesses may not have the luxury of hiring every employee that will have the level of trust needed to hold a business debit card.
When you give an employee a debit card, they have direct access to your business checking account. They can spend the money on whatever they swipe their card to buy. That can include plenty of purchases your business shouldn't be making, such as personal purchases.
Once an employee spends that money, it’s gone. You may be able to open a fraud claim with your bank if your employee has broken company policy, but your money may not be reimbursed until the fraud claim is settled.
Another avenue for fraud
There is also the potential that you could lose the fraud claim request.
Employee fraud isn’t the only type of fraud to watch out for. Other parties may gain access to your business’s debit card number. A server at a restaurant may copy it or a gas station card skimmer may steal your details.
These criminals can also drain your business bank account quickly, leaving your business without the funds necessary for daily business.
Tips for Managing Employees’ Debit Cards
The first step in successfully managing employee debit cards is setting company policies around their use.
Your company should create a policy detailing:
- Who gets business debit cards
- What purchases can be made on them without prior approval
- Which purchases need approval
- How to submit receipts from purchases
- Any other rules to minimize fraud and maximize the effectiveness of the program
If you give your employees business debit cards, most banks have features that can help manage them.
Adding a spending limit on each individual’s debit card can help minimize the risk of losing too much money from a single uncontrolled employee.
Each bank may have different limits you can set. There may be a maximum purchase limit, daily purchase limit, or monthly purchase limit.
Ask your bank to see what tools you can add to employee cards to control business spending.
Another possible way to minimize negative impacts is setting up account alerts on business debit card usage. Your bank may be able to send alerts to a manager or owner of the bank account for events such as:
- Individual purchases over a certain dollar amount
- Spending over a certain amount in a certain period
- ATM withdrawals
- Low balance threshold
By combining these tools and trustworthy employees, some businesses may be able to manage business debit cards for their employees successfully.
How to Pick a Business Checking Account
Picking the best business checking account can make a world of difference to your company’s finances.
Each bank or credit union offers its own suite of checking account features and fees. In general, you want to maximize convenience and features while minimizing your company's costs.
Before you get started, make sure any bank you consider is insured. Banks are generally insured under the FDIC. Credit unions are generally insured under NCUA.
You can eliminate several potential options by making a dream list of features you want in an account, such as:
- No monthly maintenance fees
- Free employee debit cards
- Integration with bookkeeping software
Once your options are narrowed down to a couple of remaining contenders, compare the banks in the following categories.
Fees
Some banks focus on minimizing fees for customers, while others charge a very long list of fees.
Look at each bank’s list of fees and figure out which ones you may pay over a regular month. If you regularly make wire transfers, minimizing these fees could be key.
Look for the bank that charges the least fees while meeting your other requirements.
Some banks may offer a free trial of certain services. This can be a great way to test a new bank, but your final evaluation should be on the cost of services after a free trial ends.
Limits
Your bank account may have many limits that, if not met or if exceeded, could result in fees or account closures.
If your business deals with a lot of cash, make sure you understand if there are any cash transaction limitations before fees kick in.
You may also want to consider minimum balance requirements or the maximum number of transactions allowed per month before fees kick in.
Employee debit card features
Many banks allow employees to have a debit card, but not all do. Even if a bank provides employee debit cards, they may offer different control features.
Look for a bank that offers employee debit cards and the controls you need to manage your business. This could include setting alerts and setting employee or company spending limits.
Some banks may charge employee card fees, which is another factor to take into account.
Interest rates
If you keep a large balance in your business account, you may want to prioritize finding an account that pays interest. Many accounts pay no interest or a rate close to zero percent.
However, leaders in this category pay interest rates several times the industry average.
ATM and branch access
If you plan to visit your bank in person or use their ATM network to withdraw cash, locations are key.
Make sure your bank has branches and ATMs in places you regularly visit to minimize inconvenience for your business.
Features that make your life easier
Don’t forget that banking features can make your life easier. For instance, a well-designed mobile app could save you time by avoiding visiting a branch.
Some banks may offer a dedicated customer service representative to help solve problems. Others may integrate directly with your company’s accounting software or provide virtual cards.
These conveniences could save you time and money. These features could mean it makes sense to pay fees for other parts of your business checking account.
Options Other Than Employee Debit Cards
After examining the above, the answer to the question “Should I give business debit cards to my employees?” may be no. If you still want to give your employees spending power, you have other options.
Business credit card
The most common option is having a company credit card that allows you to have employee cards.
Business credit cards help because money does not come directly from your checking account when you make a purchase.
If fraud occurs, the credit card company won’t already have your money, leaving it available for other purposes until the fraud case is solved.
Of course, company cards come with downsides, too. If you carry a balance, you’ll have to pay interest on that balance. This can quickly add up to a large cost for some companies.
Employees can still make fraudulent purchases or not follow company policies. You must still monitor these accounts closely.
Business prepaid debit card
Another potential solution could be purchasing prepaid business debit cards for employees. Prepaid debit cards face much more significant risks and aren’t usually a good option.
If the card gets lost or stolen, you may be unable to recover the funds. Once an employee spends the money, it’s gone.
These could be good for occasional purchases if you keep the prepaid debit card amounts low to avoid fraud issues.
No matter which option you choose, you’ll need to keep an eye on employee spending. This is the only way to ensure fraud doesn’t affect your company’s profits.
