Do you maintain a payroll account totally separate from your general operating account? Here are some good reasons to do so:
- You may want to limit who has access to this account. If an employee is involved in processing your payroll, you can prohibit them from having access to the operating account. This is not always practical, but sometimes firms want to limit who can “see” what is going on in the payroll account.
- You will be reconciling two accounts – this might seem like a disadvantage, but you may be able to sleep better at night knowing that the payroll account has been reconciled even if your operating account has not. Payroll accounts can be easier to reconcile as typically you are dealing with checks that clear very fast and outgoing electronic transactions. You should not have multiple incoming funds, other than the regular funding of this account from the operating account. So your recon process should be clean and quick.
- Your fraud exposure is limited. To the extent you only fund your payroll account on payday for a certain amount, in theory a fraudster should not be able to wipe you out. Most of your money will remain in your operating account.
A drawback to the separate accounts is that you have to remember to fund your payroll account. This might not seem like a big deal, but there have been times when payroll accounts have gone unfunded because someone went on vacation and forgot to make that online transfer. And the last thing you ever want to do is have an employee try to cash a payroll check and be turned away. This can be avoided by using a Zero Balance Account (ZBA) set-up. A ZBA will automatically link your payroll account to your operating account so that you never have to fund the payroll account – hence the term Zero Balance. Because it is systematically linked to your operating account, when a check tries to clear the payroll account, the bank automatically moves the specific amount of the check into the payroll account from the operating account to pay it. You never have to worry about transferring money to cover payroll. Your bank will charge you a monthly fee for this service, but you may find that it is more than worth it for your peace of mind. One caveat is that once you link the payroll account to your operating account, it would not limit fraud risk to just the payroll account. It could involve your operating account as well.
Fraud risk can be significantly reduced by subscribing to services that protect both your check writing activity and electronic activity. I will discuss those in greater detail in a later post.