Do we need a separate payroll account?

Question

What size company, if any, needs two different accounts to write checks from: payroll and accounts payable?

Answer 1

I own a business that does 10MM+ in revenue a year and I don't have a separate payroll account. I don't see the point of it for my business. I do payroll every other week and I always know what to budget for. I'm always on top of my open checks and have good cash flow.

That said, if you expect to have poor cash flow, it would be a good idea. You don't want to have employee paychecks ever bounce. # 1 way to ruin goodwill.

Answer 2

It can make for simpler record keeping for any size company. In cases where a company utilizes a payroll company such as ADP or Paychex where the payroll provider writes checks directly on the Company's account, I would recommend having a separate payroll account for this purpose.

You should really talk to your banker about treasury management options. Most banks have some fantastic ways to maximize cash flow and simplify cash management.

Answer 3

The payroll account is basically an accrual account and most companies use a seperate account because it has a large volume of change every pay period. It also is often seperated to ensure there is no co-mingling of payroll funds. If the company is doing their own payroll, they simply do an automated transfer of account on the date of record to cut the checks and then have the checks created. The bank will do the cash management transactions to move the individual paychecks to employee accounts (regardless of bank) using EFT. If they use ADP, they basically move they just transfer the money to the outsourcer, like ADP who picks up the money, runs the payroll, creates the checks or EFT and is done. As for your process.... spot on. You've definitely got the idea :)

Answer 4

We do payroll out of one account for union people and out of the general account for office and admin people. The only reason for the payroll account is the payroll clerk has a signing machine and giving her an empty account just transferring what is needed doesn't leave a low paid clerk access to hundreds of thousand more than is needed.

Answer 5

I think every company should have a seperate payroll account. It just makes record keeping and accounting easier.