Sometimes businesses need to pay their employees with cash, verses issuing a paper paycheck. There are a integrate reasons the company may want or need to do this:
- The company is having cash flow problems, and paying employees from cash is easier to manage.
- The laborer may not have a bank account. Cashing a paycheck is difficult and/or expensive, and direct deposit is not an option.
Businesses should never naturally hand employees cash for work performed. There must some type of paper trail to prove:
- in what manner the laborer received the funds
- when the laborer received the funds
- how the gross pay was computed
- what employment taxes were withheld from the pay; gross pay vs. Net pay.
Every singular one of these is a inherent issue that could arise in the event that the laborer disputes the pay, or in the event of a employment tax or work comp audit.
Here is how to pay employees with cash, while still protecting the company from inherent problems:
1. The company must be set up with some type of payroll service. Whether QuickBooks must be enabled to achieve payroll, or an outside aid should be used. Whether way does not matter, but somehow payroll taxes, etc., must be computed correctly.
2. Generate a paycheck in the general way, using the checking catalogue to draw from, or a special checking catalogue for payroll, if you have one.
3. Have the employees endorse the checks - he/she is signing it over to you.
4. Pay the employees cash. It must be the exact amount on the checks, to the penny. No fudging here! This is important, because the cash paid out must reconcile to the check amounts. If the amounts are not exact, it will be difficult to reconcile them.
5. Take the checks to the bank and deposit them back into the checking account. Don't void them in the software. Although voiding them has the same net ensue on the bank balance, the accounting software cannot compute the gross pay and payroll taxes correctly if they are voided.
Another alternative is to naturally Generate "dummy" checks on blank paper. Make sure the employees put their signatures on them. Pay with cash, to the penny.
The employee's signature on the paycheck or "dummy" check is crucial - this way, the laborer cannot claim he/she was not paid.
Following this method, you are naturally cashing the employee's paychecks for them. This leaves a very good paper trail for your accountant or auditor to follow. All things is clean, above-board, and easy to understand.
My thanks goes to Suzanne Mead, Certified QuickBooks ProAdvisor over at http://forums.quickbooksusers.com/index.php, for this perfect tip. Thank you Suzanne!
Paying employees can be a burdensome work for a company. One alternative is to use payroll card which are as similar as bank debit card. In spite of adding salary to the bank, the money is added to the payroll card. Isn't that exciting?
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