You have a candidate that is driving in for an interview and your company wants to cover the mileage costs. Maybe the candidate will need to pay for parking too. It’s tempting to just give the candidate a $50 gift card to cover those expenses. Creating an expense report and having to go through your company’s accounting process can be time-consuming for both the candidate and the company.
There are some things that you should consider when thinking about using gift cards to compensate people for interview expenses.
Taxes and Reporting*
Gift cards could be considered income and therefore reportable and taxable. The problem with issuing gift cards is the requirements for an ‘accountable plan’ as required by tax authorities may not be met. An accountable plan for reimbursements is a documented method for reimbursement that includes who will be reimbursed for what and the requirements to substantiate that expenses are legitimate business expenses. This usually means the collection and review of receipts that prove that expenses are valid. Just issuing out gift cards without linking the funds on the cards to actual expenses could be a problem.
From a reporting standpoint, companies may be required to issue a 1099-MISC to any non-employee who received more than $600 in a given year. If you have a candidate that needs to be reimbursed more than $600 over the course of the year (multiple interviews?) then this reporting requirement will need to be considered.
What is your process when a gift card is lost by a candidate? Depending on your answer this may lead to increased costs for your company or a disappointed candidate who probably just wishes they had the cash put in their account. Gift cards are notorious for being lost and underspent. They are just another item that has to be kept track of in order to receive the value. Is that a burden you want for your company and candidates?
Management of the card program
You’ll need to purchase the cards in advance and have a process in place to have the cards (either physical or virtual) issued to the candidates. Especially for distributed teams, this can lead to confusion and difficulties. You also may need to come up with a tracking program that shows who received cards, for how much, and where the costs need to be allocated. Where does this information get stored? Who has access to this list and who is responsible for keeping it up to date?
Gift cards have a place. They are great as a graduation present for your favorite niece or nephew. As a business tool for reimbursing expenses? They may be a shortcut with more cons than pros.
* Always talk to your own tax and/or legal team to understand your exact situation. Reimbi does not issue legal guidance or advice.