Employers often provide certain employees with company credit cards for use only for business purposes. The practice is convenient for both employers and employees, expediting the process of making important purchases for the organization. Unfortunately, employees sometimes abuse this privilege and use the card for personal expenses. When that happens, what can an employer do?
Many employers’ first instinct is to deduct the misused amount from the employee’s next paycheck. Federal and state wage and hour laws, however, generally limit the ability of the employer to make such deductions.
For example, under the Colorado Wage Act, employer deductions from employees’ wages are generally prohibited unless they fit into a specific exception. One exception authorizes deductions for things provided to an employee for the employee’s benefit with a valid, written agreement authorizing the deduction. If an employee remains employed after the discovery of credit card misuse, the employer may work out a repayment plan with the employee and execute a valid, written agreement for the repayments to be made via deductions from wages.
Another exception is instances of employee theft. Under the theft exception, the employer must file a police report claiming theft by the employee. The deduction may not bring the employee’s wages below the minimum wage. Importantly, if charges are not brought against the employee within 90 days of the police report, or if the employee is not ultimately found guilty, the employer will owe the employee the amount withheld plus interest. Moreover, improperly deducting from wages can lead to additional penalties for employers.
Given the risks associated with wage deductions, such as the deduction for theft, employers may seek alternative means of recovery. Depending on the amount misused and whether the employee remains employed, the employer may choose to bring a claim against the employee in small claims court. Strong documentation of the permissible reasons for credit card use and the instances of personal expense misuse are key in such recovery actions. But litigating the claim can be costly and time consuming for the employer, with no guarantee of a favorable result.
For these reasons, the better approach is to prevent credit card misuse in the first place rather than addressing it after the fact. There are practical steps employers can take to reduce the risk of credit card abuse, including the following:
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Implement a clear credit card expense policy. The policy should specifically outline authorized purchases and the procedure for submitting documentation for these purchases. The policy should also lay out what actions will be taken if the card is used for personal or other non-authorized expenses. When issuing a credit card, employers should review the policy with the employee and answer any questions. Relatedly, employers should also consider requiring employees who receive credit cards to sign payroll deduction authorizations. Employers Council has a company credit card usage sample handbook policy and a payroll deduction authorization whitepaper.
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Organizations should also regularly audit credit card accounts. The earlier misuse is caught, the easier it will be for the employer to address the situation. If an instance of misuse is found, the employer should promptly address the situation, consistent with any applicable policy or agreement. Employers considering wage deductions should first consult with counsel.
Credit cards can be an effective tool for running an efficient organization, but employers should be mindful of these issues before issuing credit cards to employees. If you are an Employers Council Consulting or Enterprise member and have encountered employee credit card misuse, reach out to us for guidance.
Miller Jozwiak is an attorney for Employers Council.