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David Meiland
01-13-2012, 09:40 PM
I had an accounting situation come up that I could not solve. An employee asked if I could deposit his check into his girlfriend's account, because it would be the quickest way to get him the money (his girlfriend banks at the same bank I do). I wrote his paycheck as usual and took it to the bank, but as I expected they would not take the deposit because he is not named on the account. It occurred to me to simply withdraw the exact amount of money from my business and make a cash deposit, but I had to keep moving and simply dropped his check in the mail.

So... as a matter of accounting, what happens when you want to convert an employee paycheck into cash? I'm pretty sure I need to actually write the check--that's how job costs and payroll liabilities are entered to my books. Is there some way to then credit the check to petty cash and withdraw it, or some other mechanism?

davenorthup
01-13-2012, 10:01 PM
So... as a matter of accounting, what happens when you want to convert an employee paycheck into cash? I'm pretty sure I need to actually write the check--that's how job costs and payroll liabilities are entered to my books. Is there some way to then credit the check to petty cash and withdraw it, or some other mechanism?

I do not know the answer to your question but I would never pay an employee in cash. I want a canceled check as proof of payment as part of the paper trail.

I am a stickler with employees and tell them no matter how much I like them; I am not their bank. No advances, no cashing checks - nada...

Happy Home
01-13-2012, 10:19 PM
You cash it personally. He endorses it / signs it over to you. You (both) go to the bank and you cash the check against your personal acct. The teller will make it all wash. You still have the payroll check in place no accounting problem.

BeachBoy
01-14-2012, 02:39 AM
When I write a check to a sub, sometimes they want/need the cash quickly. They go to the bank (in this case a Credit Union) and ask to cash the check. Once in a while I will get a call from the bank confirming that it is a valid transaction, but usually they just cash it. They have a maximum cash withdrawal of $3000 I think so that could cause a problem if the amount was over that.

You could get him a Cashier's Check, which should be easier for him to cash.

If this is likely to be a common occurrence, he should open a savings acount at the bank to make it easy to cash/deposit the check. Perhaps he has had previous banking problems that prevent him from opening an account?

David Meiland
01-14-2012, 02:51 AM
He has no problems like that, and no need for an account at this bank, this is really just an accounting procedure question. I have no idea how to cash a check for someone and keep it straight on the books.

BeachBoy
01-14-2012, 03:01 AM
Well, I would think he DOES need an account at this bank, at least if he wants to be able to quickly cash his paycheck. As Dave N. suggested, you are not a bank. I wouldn't think you'd have time to go deal with issues like this that most employees are expected to deal with themselves.

That said, I've been known to help out an employee too when needed. But I wouldn't want to make a habit of it. Too many other things to do...

David Meiland
01-14-2012, 09:54 AM
Beach, you're off track. Do you have any comment on the accounting procedure for this?

parkwest
01-14-2012, 10:17 AM
David, I think Beach is spot on. Have you read The one minute manger meets the monkey?

David Meiland
01-14-2012, 10:22 AM
Gentlemen, please take a moment to examine your apparent unwillingness to treat this an an ACCOUNTING QUESTION and not a business management or employment policy question. As far as I can tell, none of you (and me too) have an accounting answer, and while the banter about how he should open an account and I am not a bank might be entertaining, it's not "spot on". Seems like we have a stumper, although Joe has not weighed in.

Overbuilders
01-14-2012, 10:32 AM
So... as a matter of accounting, what happens when you want to convert an employee paycheck into cash?

I use QB, so I would write a numberless check and assign it under typical payroll expense account with the usual deductions. Simple.

Joe Adams
01-14-2012, 10:41 AM
David,

Sorry for the delay in replying but my internet has been down since 8pm last night.

You obviously already know that paying employees in cash can raise a red flag with the IRS because they are concerned about the potential for evading employment taxes. That being said, it’s perfectly legal and common practice in some business sectors.

The main thing to remember is you must provide a statement of deductions and obtain their signature confirming that they have been paid.

Now for the accounting – You could use the petty cash account directly while in your payroll system but for consistency I’d recommend that you draw from your normal payroll or operating account. In this case, create a paycheck in the normal way and have the employee endorse it over to you. If you keep petty cash on hand, go ahead and pay them to the penny (so that you can easily reconcile later) and deposit their payroll check back into the payroll/operating account at your bank. If you don’t keep cash on hand, you’ll need to go to the bank and literally cash the endorsed check for your employee. Don’t be tempted to void the check or Quickbooks won’t compute the employment taxes correctly.

By doing this, you are basically cashing the employee's paychecks for them. This procedure will leave a paper trail and keep everything squeaky clean if you’re ever audited.

David Meiland
01-14-2012, 11:07 AM
OK, so the employee needs to be there to endorse the check. Then, I cash it at the bank and deposit cash to his girlfriend's account.

For what it's worth, the guy in question doesn't live locally, and I don't have checks ready before he leaves town at the end of the week, which is Thursday for him. So, on Friday, I generate his check along with others after it's too late for him to sign it or for me to hand it to him. I suppose if this is an issue in the future, I will simply have him endorse a blank check that I can then use to print his paycheck. Hmmm, that sounds kinda shady.

Also, it is common for me to have employees who bank where I do. I often just deposit their checks for them, I have their account numbers in my contact manager. Next week, I hand them the pay stub and a deposit receipt. That's what passes for direct deposit in my company.

Overbuilders
01-14-2012, 11:13 AM
Now for the accounting – You could use the petty cash account directly while in your payroll system but for consistency I’d recommend that you draw from your normal payroll or operating account. In this case, create a paycheck in the normal way and have the employee endorse it over to you. If you keep petty cash on hand, go ahead and pay them to the penny (so that you can easily reconcile later) and deposit their payroll check back into the payroll/operating account at your bank. If you don’t keep cash on hand, you’ll need to go to the bank and literally cash the endorsed check for your employee. Don’t be tempted to void the check or Quickbooks won’t compute the employment taxes correctly.

Fairly certain I said basically the same thing in 25 words or less. Joe, how did you change your screen name?

David Meiland
01-14-2012, 11:20 AM
Fairly certain I said basically the same thing in 25 words or less

You said you'd write a numberless check... nothing about how it becomes cash for the employee. I don't understand why it's numberless, are you then paying in unmarked bills?

Overbuilders
01-14-2012, 11:23 AM
You said you'd write a numberless check... nothing about how it becomes cash for the employee. I don't understand why it's numberless, are you then paying in unmarked bills?

There's the difference in my post and Joe's. I wouldn't actually print the check, just record it, saving a check, then hand over the cash. But I do see the value of an endorsed paper trail. So I change my mind.

BeachBoy
01-14-2012, 11:50 AM
So... as a matter of accounting, what happens when you want to convert an employee paycheck into cash?

Well, perhaps this is a nit, but once you write an employee a check and sign it, it is theirs, not yours so you aren't supposed to be able to cash it. The employee can take an action to allow you to cash it however, which is apparently what you want to do.

The whole thing of cashing employees paychecks and doing something with the cash would make me extremely nervous. When I make a deposit to another person's account where I am not a signer on the account, my credit union will not give me the receipt. They mail the receipt to the account owner. So I don't end up with any piece of paper showing what I did with the cash. Perhaps your bank operates differently.

With regard to the QB transaction, it seems to me that once you write the check, you are done with the transaction as far as QB is concerned. If you want to get it endorsed back to you, go back to the bank, and cash it and do something with it, that is an action outside the book keeping of your business. Question: When you have him endorse it back to you, is he endorsing it to you (i.e. to your name) or is he endorsing it to the business name? If to you, it would be a personal transaction no longer related to the business. If it is to the business, then you would have to (want to?) redeposit it into some account at the bank, such as a business savings account, then transfer it to the girlfriend's account. This would provide the paper trail that I think you would want.

I think in an audit you are hanging out if cashing your employee's checks for cash, maybe not legally, but it would be a red flag as it is not commonly done.

Why aren't you asking your accountant this question?

David Meiland
01-14-2012, 12:07 PM
Richie, now I see what you mean by a numberless check: not printed. In that case, you have the transaction entered to QB, but nothing to hand the employee or the bank teller.

Greg, good point about what evidence you have if you deposit cash to someone's account. In the cases where I have deposited paychecks for people, I get a receipt. I had assumed I would get a receipt for a cash deposit also. I suppose in dire circumstances you could show the judge the cancelled check endorsed to you, and film from the bank security camera showing that you made the deposit. The reason I have not asked my accountant this question is that he charges a lot of money, and you guys are far more entertaining and informative. I pay him the absolute minimum possible.

I did have a work comp audit last year, and they go through everything. The auditor sat in my chair using my computer to comb through QB and my job files, with my payroll binder open on the desk (timesheets, pay stubs, etc) along with bank statements, tax returns, everything. She was very thorough and easily able to dissect the smallest details. There would be no way to hide anything at all. She explained to me how she would refer any possible issues to the IRS, the sales tax people, the unenjoyment people, etc., so they might come calling too. Good thing my books are so incredibly clean!

BeachBoy
01-14-2012, 12:28 PM
One of the benefits of QB is that it provides the visibility and documentation into your accounting. It is supposed to be clean. If you didn't want to run a clean business you'd keep your business records in a shoebox!

I'm assuming she didn't find your transactions where you cashed your employees paychecks since those transactions were off the books unless for some reason you keep copies of the cancelled checks and she had reason to look at the endorsements. Also, probably wasn't relevant to what she was looking for. Nevertheless, I wouldn't be inclined to bring it up... ;-)

Don't get me wrong, I don't see anything nothing wrong with the transactions as you did them, just the potential for someone to question them, which is extremely unlikely in the first place. Just ensure that there is a complete paper trail, which it sounds like you might have, or change your procedures to move the money back through one of your accounts. Either should work. If you move it through one of accounts, it is self documenting and you can't lose the receipt.

As it turns out I'm switching to QB also at the moment, although I've used Quicken (RPM) for many years. I took the usual Accounting course in college so have just a rudimentary background in double entry book keeping. I agree it isn't always obvious what accounts to use or how a transaction should be entered. Interesting to figure it out though...

David Meiland
01-14-2012, 12:40 PM
To be clear, I've never cashed an employee paycheck, it has never come up until a few weeks ago with this one particular guy. He didn't even ask about it, I just said I would look into whether I could make a third-party deposit for him. I suppose the one who needs to be concerned about that is his girlfriend, who would have hard-to-explain deposit(s) on her account.

Joe Adams
01-14-2012, 12:41 PM
Joe, how did you change your screen name?

The forum administrators made the change from my previous username “deepcreek” to my own name when I became the moderator of this forum. This was done to be consistent with the practice of utilizing real names for the forum moderators.

Joe Adams
01-14-2012, 12:51 PM
Question: When you have him endorse it back to you, is he endorsing it to you (i.e. to your name) or is he endorsing it to the business name?

By endorsing it, I meant the employee would sign the back of the check without adding any restrictions such as "For Deposit Only". It would then be fully negotiable by the bearer.

Overbuilders
01-14-2012, 12:53 PM
The forum administrators made the change from my previous username “deepcreek” to my own name when I became the moderator of this forum. This was done to be consistent with the practice of utilizing real names for the forum moderators.

Ah ha, was not aware of your forum association, but congratulations just the same. I'd like to use my real name as well without being a moderator. Any pull in that arena?

David Meiland
01-14-2012, 12:57 PM
I would send an email to Michael Chotiner and ask if he can bring you over from the dark side.

Joe Adams
01-14-2012, 01:00 PM
David,

There is a less conservative alternative from an accounting standpoint. You could go through your payroll process and use your Petty Cash account in Quickbooks for the funding source for this particular employee. Then print a "paycheck" on blank paper for him to sign as a receipt when you hand him exact cash out of your petty cash fund. I would be very leery of taking the extra step of depositing it into a third party's account because of the potential for being caught up in a relationship dispute.

parkwest
01-14-2012, 01:39 PM
Question: How much do you charge for this check depositing service? Seems you've run up a number of billable hours in just the discussion here, not to mention the actual time to run to the bank.

Dick Seibert
01-14-2012, 01:46 PM
David, I wouldn't do it, I won't even write them a check, everything is direct deposited into their bank accounts through QuickBooks' direct deposit, no bank account, no work from me.

Joe:

Intuit now has a program to direct deposit into vendors' bank accounts, I'd love to do it but the Assisted Payroll program I am on won't allow it.

Important: Direct Deposit for vendor payments is not currently supported for Assisted Payroll users.¹
I've talked to my CPA and she says there are three payroll programs and Assisted is what she wants me to have, unfortunately it is the only one that doesn't direct deposit into vendors' accounts, maybe someday.


¹ http://support.quickbooks.intuit.com/support/pages/inproducthelp/Core/QB2K11/ContentPackage/Payroll/Direct_Deposit_Payroll/task_dd_pay_vendor.html

BeachBoy
01-14-2012, 03:24 PM
Dave, I wasn't sure what was bothering me about this but after thinking about it there are a couple potential issues.

First, you have a person, who happens to be an employee, giving you money, with no record of why. The IRS 'could' decide that this must have been' off the books' income and you now owe taxes on it. Even though you know what it was for, the IRS doesn't and on the face it looks a little suspicious. For example, perhaps you redid his kitchen and he was paying your for it.

Second, you are depositing money into another person's account. The IRS could decide that this must have been 'off the books' payroll, and again, you would owe payroll taxes on it.

I'm sure there are plenty of other ways this could go bad, these are just a couple. Is it likely? Probably not. I wouldn't lose any sleep over it, but I either wouldn't do it in the future (ala Dick...) or I'd be sure it was well documented.

tomthetoolman40
01-14-2012, 07:05 PM
As an employee, my point of view:

If he can't pick up his check until Monday he can get it on Monday and plan accordingly for his bill paying. After the first payday, he'll be on schedule every week or two weeks whatever the pay schedule is. He then pays his bills on Monday instead of Friday.

We get paid every other Wednesday, but sometimes I don't get to the shop until Monday. It's not that hard to budget.

BeachBoy
01-14-2012, 07:10 PM
One would think.......

Too many of us live on the edge, paycheck to paycheck. Strange to think that people can't get just a week ahead....

Dick Seibert
01-14-2012, 07:10 PM
or I'd be sure it was well documented.
Therein lies the rub, how do you document it? If you do it with a paper agreement it will raise a red flag at audit, you are going to have to explain it away later, even if you can dig out the paperwork and adequately explain it more red flags will be raised. It's not David's problem, he should issue the check and that's the end of it as far as he's concerned. BTW, this comes up without fail at least once a year at Workers' Comp audits, if the auditor finds any irregularities he/she is bound to notify both the state and IRS.

Dancing Dan
01-14-2012, 07:14 PM
Dave - did you check with your bank? If he endorsed the check back to the company, could you give him cash for it? Or would it have to be your personal account?

Otherwise, from an accounting standpoint, I think Rick's numberless check is fine, but obviously from an audit standpoint not so great.

BeachBoy
01-14-2012, 07:19 PM
Your right Dick. Hard to document a negative. How to you document that the check your employee endorsed back to you wasn't for new kitchen cabinets for him? Or that the money you deposited into his girlfriend's account wasn't really a hidden payroll and she's actually your mistress? (Just a hypothetical here... ;-)

If you want to slip your mistress some cash to keep her quiet and happy, there is hardly a better way that to create a fake (or real non-working) employee and divert the funds. Politicians seem to do it frequently enough. ;-)

None of this generally causes a problem as long as you aren't running for office, and nobody is out to get you. It's when either of those are no longer true that "you've got some 'splaining to do Lucy!!!"

Just avoid the problem in the first place.

Overbuilders
01-14-2012, 07:23 PM
If you want to slip your mistress some cash to keep her quiet and happy, there is hardly a better way that to create a fake (or real non-working) employee and divert the funds.

Better yet, use an alias. Handful of counterfeit business cards with bogus phone numbers. For example, tonight my name is Rufus. Say it three times. Rufus...Rufus...Rufus...

Joe Adams
01-14-2012, 07:48 PM
Okay guys. This is getting a little out of hand. I'm sure David's original question has been answered sufficiently for him to determine how he wants to handle this for his business.

I agree that there are some risks but the main thing a government auditor will be looking for is that employment taxes were properly withheld and paid. Either of the two methods identified will leave an adequate paper trail. Frankly, I've done this once or twice myself when paying subcontractors.

This has been a good discussion of the issue and I appreciate everyone who has contributed. Please keep the new threads coming in the Accounting and Finance forum.

TWhite
01-14-2012, 09:54 PM
On one of my early carpenter jobs as an employee we got paid with cash in an envelope that had a stub that you signed as a receipt that was removed for the owner. There was also a place on the back of the envelope that had your withholdings filled out by hand.

Andrew R.
01-15-2012, 06:29 PM
On one of my early carpenter jobs as an employee we got paid with cash in an envelope that had a stub that you signed as a receipt that was removed for the owner. There was also a place on the back of the envelope that had your withholdings filled out by hand.
I must have worked for the same guy, 40 hours at 2.00 an hour netted 65.07 after taxes. He also banked my overtime so I never made more than 65.07 a week. Can't remember if that waa after he charged us for lunch. Nobody ever had enough money to buy lunch.

Allan Edwards
01-15-2012, 06:50 PM
I must have worked for the same guy, 40 hours at 2.00 an hour netted 65.07 after taxes. He also banked my overtime so I never made more than 65.07 a week. Can't remember if that waa after he charged us for lunch. Nobody ever had enough money to buy lunch.

When I was 15 and worked for a framing contractor named Joe, making minimum wage ($1.20), Joe's wife would make sandwiches, then Joe would SELL the sandwiches and soft drinks to the workers. I was told if I wanted to keep my job I would buy them!

David Meiland
01-15-2012, 10:05 PM
You guys are giving me some good ideas here, especially now that Parkwest pointed out how much time I've invested in this.

TWhite
01-15-2012, 10:25 PM
Older guys have skills!