pay dates issue

I have encountered an issue and would appreciate any feedback.

What are the implications of depositing net wages into employees' bank accounts a day before the recorded "pay date"?

The company is a privately held corporation which is in the business of processing payroll for other companies. Payroll is in the millions of dollars and is processed daily. Most of the companies are on a weekly or bi-weekly pay period with the official paydays on Fridays. As a "favor" to certain companies, the direct deposits, for the employees who have direct deposit, are transmitted on Wednesdays to hit the employees banks on Thursday.

Financial records are not accurate. The dollar amounts are substantial, in the hundreds of thousands of dollars. Does not GAAP require the transactions be recorded with the "actual" pay date? The balance sheets at month end may or may not be mis-stated. The monthly balance sheets are generally only for internal use. For external purposes there is an annual compiliation as of Dec. 31st which probably is not mistated as to cash. However, there are numerous detail records produced for the companies and individual employees, all going out with incorrect pay dates.

Bank reconciliations are extremely difficult as the dates in the accounting system are useless. The direct deposits are uploaded to the bank but then combined in random combinations with only some of them given a settlement date which matches the accounting information but many many of them hit the bank before they exist according to the accounting system. In order to reconcile the accountant must take the list of from the accounting software and try various combinations in order to match the amounts on the bank statements.
Compliance issues and taxes. It's clear that the FLSA applies which requires dates of payments to be recorded. Various other regulations apply and the business is subject to DOL rules which require "true and accurate" recordkeeping. The 941's are accurate on the first page but the schedule B which is produced by the accounting software is not accurate. It had been decided that since any tax liability due for payroll deposited on Thursday would not be due any sooner than the payroll depositied on Friday, and since the tax is paid when due---this is not a problem. One doubts, however, if the IRS would be persuaded by this justification since the instructions are clear that the schedule B is to use the date of the liability and NOT the due date.

Other payroll liabilities. It is required that withholding dates be reported for 401k deferrals and flex plan payments, etc. Is it important that many of these are reported using dates that are simply wrong?

What else am I missing?

Or--is this of no consequence, no big deal?

Would appreciate any thoughts.

Thanks!

"CmyA" wrote

Yup. That's what happens often. Don't worry about it.

Ummm. Your clients are most likely having their bank account debited for the full gross payroll, the associated taxes and the payroll fees on that day, or on the day before. I would suspect the client books that to an expense when it gets taken from their bank. If not, they shove it to a pre-paid, and expense it on the pay date.

Again, see above. If it's not expensed when taken from the client account, then it hits a pre-paid for a day or two.

Most likely it's just expensed and the only reconciliation or adjusting entry is done at year-end.

Pick a method for handling the entire transaction and stick with it.

I see it as no big deal.