Floating sounds like a delightful way to spend a summer afternoon, doesn’t it? Actually, in the world of payroll tax processing, it’s a little less romantic. In accounting and bookkeeping, float is the time between the writing of a check and when it clears the account on which it is drawn. This also applies to electronic payments.
Whether your payroll processes are outsourced or insourced, you probably have a float. The float is essentially double-counted money: a paid sum which, due to delays in processing, appears simultaneously in the accounts of the payer and the payee. Individuals and companies alike can use float to their advantage, gaining time or earning interest before payment clears their bank.
Usually, with outsourced payroll processing, you will be required to pre-fund an account for payroll taxes. The money will be held until it’s time to pay the government. So, what are the advantages or disadvantages of pre-funded payroll tax accounts?
Pre-funded payroll tax accounts
They sound like a good idea. You won’t have to remember filing dates and worry about making direct payments. You won’t have to come up with a lot of money at the last minute because it’s already in your pre-funded account. There are fewer items on your “tasks” list. But there are also disadvantages.
Having money in a pre-funded account means that a part of your cash flow becomes unusable. If the time between putting the money aside and actually paying the taxes is considerable, you’ve lost the benefit that working capital might provide. If it’s essential to your business to keep that money liquid for as long as possible or keep it earning interest, then a pre-funded payroll tax account might not be the best choice.
Also, working with a payroll provider that mandates pre-funded payroll tax accounts tasks your team with extra steps and a lag time between depositing your funds and having your taxes paid.
And, if a third-party payroll provider will be holding your money and scheduling your payments, you’ll have to trust them not to make mistakes or experience outages and scheduling delays. If they do encounter problems with filing your tax payments, you are the one ultimately responsible.
Well, it’s not to imply that third-party payroll tax providers are fraught with mistakes, outages, and delays. But it is something to think about when your cash flow is involved.
Is there a better way?
We believe there is a better way. Greenshades is a cloud-based, insourced payroll provider with NO float, meaning we do not require pre-funded payroll tax accounts. Our solution helps you run your payroll in-house. We can set up alerts to warn you when tax due dates are closing in. But we don’t tie up your funds. You can schedule payments and draw from your account when the taxes are due – not weeks in advance.
At Greenshades, we believe that you should have control over your finances and your schedule. In-house payroll processing with state-of-the-art software designed to integrate with your ERP is an excellent way to guard against errors, oversights, and delays.
We provide the tools you need to handle all your payroll processes. We’ll save you time, resources, and money by putting the power of payroll and compliance in your hands.