Definition: A payroll bank account is a separate checking account that businesses use exclusively to pay employees their payroll checks. Payroll is such a large component of some businesses that it’s easier and more secure to use a separate checking account for payroll instead of the main operating account.
Companies that use this system generally print a payroll summary report at the end of each pay period. This report includes the employees’ gross wages, deductions, taxes, and net wages. A check for the net wages is then written from the main operating account and cashed in the payroll account to clear the next payroll expenses. This is most often done using an EFT or electronic funds transfer instead of using an actual check.
The payroll checks given to employees are then written from the separate payroll bank account. No other money is deposited or paid out of this account. In other words, it solely used for payroll. Nothing else.
What Does Payroll Bank Account Mean?
Payroll Bank Account Advantages
The main advantage of using a separate checking account is that the main account can be reconciled quickly every month without having several outstanding checks because employees haven’t cashed or deposited them. The entire payroll is paid with one check or transfer at the end of the period and taken out of the main operating account.
The separate payroll bank account will be the only account with outstanding payroll checks at the end of every month. This used to be a bigger concern years ago. However, today most employers are requiring that employees sign up for EFT payments.
This way there are no outstanding checks at the end of the month because there are no checks written. Everything is just deposited straight into their accounts. Besides that, a double account system like this definitely cleans up the operating account.