What Are Payroll Deposits?
Payroll is a specific term companies use to describe the financial process for paying employees. Many different activities fall under a company's payroll department. One activity is payroll deposits, which are direct transfers from the company to employees. Direct deposits are quite common in today's business environment, taking the place of traditional paychecks.
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Defined
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Companies use payroll deposits to make wire transfers to pay employees. The deposits transfer between bank accounts, with all actions occurring behind the scenes. Payroll deposits are often cheaper than attempting to calculate payroll, cut checks, place them in envelopes and deliver them to all employees. Companies with multiple departments or different geographic locations can use payroll deposits to pay employees using a central accounting office.
Imprest Accounts
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An imprest bank account is a common tool with payroll deposits. Rather than use their main bank account, companies can set up an imprest payroll account. This account holds only the money needed to pay employees. Once all deposits clear the account, the bank account balance is zero. The company will not face any penalties for having a zero balance as this is the purpose of the account. Deposit errors will result in funds remaining in the imprest account. Accountants will need to review these to get all employees paid.
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Other Uses
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Payroll deposits also have other uses, particularly with remitting payroll taxes. Many state and federal tax agencies allow for online tax reporting. Companies can fill out the necessary forms over the Internet and pay all taxes using a payroll tax deposit system. This allows for the immediate payment of taxes and relieves the company of potential remittance penalties or fees.
Considerations
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Using a payroll deposit service may not be cost effective for all companies. Small businesses, for example, do not generally have the funds or banking transactions that result in low-cost payroll deposit services. The small business can print traditional checks much cheaper than using bank payroll deposits. Banks may also be unable to offer direct deposits with certain financial institutions. This limits the possibility of offering payroll deposits to all employees.
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