Employees (1099er's) are borrowed from ABC company and paid from XYZ company payroll account when payroll account is short.. How do you set up this type of transaction? ABC company is not set up in QuickBooks. Checks are manually written on XYZ Company. We need these costs to be redistributed back to ABC company to generate 1099's. Is this set up similiar to a loan? No intercompany funds transfer are possible?
I've had situations similar to this where some where owner draws/investments and some were intercompany transfers. Your accountant is the better person to ask because different factors come into play.
You run into three problems when you allow another company to issue a payroll check though. First the issuing company should be the one paying in payroll taxes under their own EIN and state employer numbers. Two, worker's compensation is supposed to be had by the issuing company, not whomever the employee actually worked for, and it can come back at the end of the year to bite XYZ in the rear end. Three, apply number two to General Liability insurance coverage.
I agree with Tara, that method of borrowing employees could cause a large mess. Why not just have XYZ company borrow enough money to ABC company to cover payroll. Much cleaner bookkeeping.
-- Leo
Plus you run the risk of over withholding taxes for these employees. They are getting paychecks from 2 different companies when they are really only working for one. Any tax (FUTA, for example) that is capped will automatically start witholding again.
It is better to transfer funds to ABC company to cover the payroll than to mess with the taxes withheld.
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