Its in the Cards

The days of big bonuses and hefty stock options are over for most workers, at least for now. But that doesn't mean companies can't offer reasonable rewards for a job well done.

Enter prepaid cards. Offered by retailers for years, these flexible prepaid financial products are finding new uses as employee perks, as an easy option for managing travel or other expenses and as customer incentives or rewards. Companies can buy them in bulk in specific denominations or load them with a preferred dollar amount after purchase.

Today’s prepaid cards can be customized to include everything from one-of-a-kind graphics to a pre-set list of restaurants, car rental companies or hotels where they can be used.

Employee Loyalty
Even in small amounts, prepaid cards can generate loyalty among employees. Nationwide Real Estate Tax Service, a Santa Rosa, California, service that reports real-estate tax delinquencies, gives its 10 employees $25 prepaid cards for gas, coffee, books or other merchandise every day during the week before Christmas. "Business is cyclical, so raises and bonuses vary per year. The cards are a nice supplement anytime, but especially in the down years," says Scott Byorum, the company’s director of business development.

Unlike bonuses that generally come just once a year, prepaid cards can be used as rewards any time and can be given without extensive planning or calculations. When Michael Seitzinger was a compensation manager at CitiStreet, the retirement plan provider gave employees prepaid cards for spot rewards in lieu of larger bonus payments. CitiStreet gave brand-specific cards for smaller rewards and shifted to general-purpose cards for larger ones, giving recipients greater flexibility in where they could spend the money, says Seitzinger, currently working as a Jacksonville, Florida, compensation and performance management consultant.

Travel Expenses
Prepaid cards can also help companies control rising travel expenses. Atalasoft, an Easthampton, Massachusetts, imaging software developer, began testing prepaid cards for employee travel during the fourth quarter of 2009. Christina Gay, the company’s HR manager, became interested in the cards as a way to reduce the hassles of expense management, and to eliminate problems communicating and negotiating travel budgets. "I don't care where they spend the money to a certain point, but I'm not going to pay for Cirque du Soleil tickets," Gay says.

To determine how much to load on a card, Gay starts with the per-diem rate the U.S. government uses to cover its employee travel expenses and inflates that figure by 20 percent. "I used to work for the government and I know those rates are too low," she explains.

Prepaid cards have made managing travel expenses more straightforward and Gay no longer worries about tracking and reimbursing expenses. Employees who go over the budget must pay out of pocket, though so far, none have complained about the policy, she says.

Today’s prepaid cards can be customized to include everything from one-of-a-kind graphics to a pre-set list of restaurants, car rental companies or hotels where they can be used.

Instead of hounding employees for the expense information she needs to complete approvals, Gay now reviews the card balance. Any unused balances she puts toward miscellaneous company expenses, such as coffee. Gay still requires receipts for items over a certain dollar amount for tax purposes. But overall, the cards have saved time and stress for HR and employees. "I don't have to worry about owing people money," she says.

Gay must still classify expenses in the company’s accounting system. But budgeting trips ahead of time is saving money. Although Atalasoft has yet to analyze exactly how much it’s saving, the company is already expanding the prepaid travel card program across the company, she says.

Precautionary Measures
While prepaid cards have many benefits, using them comes with a few caveats.

Other things to be aware of:

• Fees - Some issuers may charge fees for cards. American Express Gift Cards, for example, cost $2.95 to $6.95 each, but carry no other fees. Other American Express B2B prepaid cards may have additional fees depending on customization.
• Taxes - Under federal law, if companies give employees prepaid cards as rewards the cards must be treated as cash and taxed, unlike baseball tickets or other gifts that aren’t taxed. As a result, companies must decide whether to gross up the amount on the gift or deduct taxes from an employee’s paycheck. At companies such as CitiStreet that didn’t allow gross ups, gift card taxes are deducted from employees’ paychecks. "We did have some people complain about that," Seitzinger says.
• Security - If a prepaid travel expense card is lost or stolen during a trip, an employee could be stuck with no way to pay for the costs. Because cards don’t require identification, money can be spent quickly if a card falls into the wrong hands. Some issuers remedy that by offering free replacements if a prepaid card is lost, stolen or used improperly. If customers contact an issuer’s customer service department as soon as they realize a card is lost or stolen, they can get a replacement card loaded with the unused balance.