How payroll providers can prevent errors with movement of funds
Many payroll providers may sigh relief when they have factored in all that can go wrong with payroll calculations and tax requirements and have a system that works smoothly. But there is more to the payroll process than just calculations and taxes. Now everyone needs to be paid. Here, payroll providers will want to provide services that include the movement of funds. And here, more things can get messy and go wrong.
What is movement of payroll funds
Movement of funds is transferring the funds acquired by the employee from services performed and their tax requirements for reaching the right destination or bank accounts in a timely and predictable manner. It may sound like a minor step, but annually nearly $9 trillion moves in the payroll system. It is the lifeblood of the economy. And if this were to fail, all the efforts to provide accurate calculations of hours and taxes are for nothing.
What is involved with movement of funds
The assumption is often made that the movement of funds is only a transfer of money from employer to employee. But it is a three-party process and sometimes involves more operations involving the employer, the employee, tax agencies, and the financial institutions that assist with the movements of funds.
There are multiple steps each payroll is submitted:
- Employees pay for the period that is calculated and taxes withheld
- Employee reimbursements for expenses that are debited from the employer’s account but receive different tax treatment
- Employee tax withholding and employer payroll taxes are paid to the correct agencies by the correct deadlines
- Child support garnishments and other ‘post-tax deductions’ from employees’ gross wages must be paid to the correct agency or creditor
With so many steps, there are multiple means for errors to occur.
What Can Go Wrong with Movement of Funds
Human error is the most common mistake with movement of payroll funds. For example, bank information can be inaccurately reported during the employee onboarding process. Or payroll admins could fail to process the payroll in a timely manner, causing funds not to transfer in time.
When hours, tips, or anything that impacts gross and net wages is incorrectly entered, it can require a payroll correction or reversal, which can also affect money movement.
But at times, too, the bank partner can cause the errors. For example, they may have a glitch in their payment processing system that disrupts the transfer of funds, or the banking partner may fail to inform customers about upcoming bank holidays or predicted time of fund disruption.
To note: if using ACH for transactions, though the system is standard – it is slow. When errors occur, a notice of that error can take up to 60 days after the ACH transaction date before the bank sends out a notification of a problem. So, if the funds transfer to an account that is closed, or the account number is incorrect or even if there are insufficient funds, the party who initiated the movement could be unaware of an upcoming issue for a long time.
So, when funds fail to reach the right destination at the right time, either the employee is not paid on time and subjected to the same stress caused when their check is not accurately calculated, or companies face pricy fees for late payments from tax departments.
How to Counter Movement of Funds Errors
Here, payroll software that can verify an employee’s bank information up front during the onboarding process can avoid delays in the movement of funds by notifying the payroll admin and the employee when there is an error in the information that was keyed in. In addition, these notifications allow the employee and the business to adjust the information before the end of the pay period.
It is also advisable to work with more than one banking partner. There is always the chance that one banking partner might be incapable of processing a movement of funds into employee accounts for unforeseen reasons. Having another banking partner who can pick up the slack when trouble comes makes the process less likely to experience a disruption.
Along with paying employees, movement of funds involves transferring funds to the correct tax agencies. A payroll provider will want to know what is involved with moving funds into the right tax agency. With so many agencies, there can also be different means of transferring funds to them and different timetables. It is essential to send the correct amount at the right times to the right agencies, and address issues and changes as they arise.
As overwhelming as it all may seem, adding a partner to assist with movement of funds can also lower the chances of payment disruptions. A company with years of experience moving money at scale and the staffing to shift resources when a possible disruption could occur gives payroll providers an added resource – and an added benefit that can be passed on to the customer.
To summarize, movement of funds is a more extensive process than the employer paying their employees on a Friday. It is essential to stay knowledgeable and up-to-date with all the steps of the process. A payroll provider who can offer businesses an ideal means of paying their employees and taxes efficiently will save money and headaches.