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.
1. 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.
2. 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.
3. 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.
4. 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
What else am I missing?
Or--is this of no consequence, no big deal?
Would appreciate any thoughts.