If your business runs payroll, you may want to consider opening a dedicated payroll account in lieu of directly using your business checking account. There are two key benefits to doing this: fraud protection and payroll audit purposes.
If you use your business checking account directly for payroll and there’s fraud on the account, your bank may recommend closing the existing business checking account and opening a new one. If that happens, you’ll need to submit the new business checking account information to your payroll company so they can process the change and update their records to ensure future payroll funds are drawn against the new business checking account. The obvious concern here is turnaround time by your payroll company to ensure future payroll is not affected. Having a dedicated payroll account can help address this issue.
Your dedicated payroll account should be setup as a zero-balance account (ZBA) which is linked to your business checking account. Your payroll company will draw funds from the payroll account each pay period. When those payroll funds are drawn, the business checking account will be used to fund the payroll account for the amount that is drawn. If there’s fraud on the business checking account, it will not affect the payroll account. Your bank will simply need to open a new business checking account then link the account to the existing payroll account. Banks should be able to provide quick turnaround time in these types of situations and no changes are required by the payroll company.
Since the payroll account is setup as a zero-balance account (ZBA), it does not actively retain any funds. Funds are typically swept into or out of the account once per day such that the daily balance in the account will always be zero. Since the only transactions that should pass through this account will be ACH debits/credits from your payroll company, you can setup controls with your bank to limit what transactions can be processed by the payroll account, which helps to prevent fraudulent transactions from flowing through the payroll account.
Having a dedicated payroll account is also useful for payroll audit purposes, especially for your Accountant or CPA firm. Unlike your business checking account which could have many debits and credits posted each month, the payroll account will typically have only a few transactions specifically related to payroll. If you, your Accounting/Finance team, Accountant and/or CPA firm need to perform an audit or reconciliation of any payroll transactions, the dedicated payroll account will make this process very easy.
While having a dedicated payroll account is not an absolute necessity, it can offer some valuable benefits and protections for your business. However, keep in mind that banks do assess monthly fees for each additional account you open. Make sure that you are aware of your bank’s fee structure and that you can adequately offset any monthly bank fees to avoid or at the very least minimize unnecessary costs.