Employee shared among multiple QBO companies?

Background

We’ve got two separate QuickBooks Online (QBO) companies, each with its own Employer Identification Number (EIN). Company A manages its payroll through Gusto, while Company B doesn’t have a payroll system in place. Last year, we hired a part-time employee for Company A, and now they’ve started working a few hours weekly for Company B. Both companies are owned by the same individual and are reported on a single consolidated personal tax return.

Question

What is the optimal method for reimbursing or recording payroll for the time worked in Company B? Establishing a separate Gusto payroll account seems excessive and likely more expensive than the few hours worked would justify. Could this situation be managed via a monthly journal entry from Company A to Company B? Is there a feasible way to create an umbrella payroll system for both companies? Seeking guidance on standard best practices for handling this situation.

When managing an employee shared between two separate QuickBooks Online (QBO) companies with different Employer Identification Numbers (EINs), the process can indeed become a bit tricky, especially when trying to remain compliant with tax regulations while efficiently managing payroll costs. Below are some options and best practices to consider for the situation where an employee works part-time across two entities:

Option 1: Intercompany Journal Entry

Payroll Processing: Continue processing the employee’s payroll through Company A using Gusto, as you have been doing.
Tracking Hours: Maintain a detailed record of the hours the employee works for both Company A and Company B. This can be done using timesheets in QBO or through another time tracking solution.
Monthly Journal Entries: At the end of each month, you could make a journal entry in Company A’s books to allocate a portion of the employee’s payroll expenses (including wages, taxes, and any benefits) to Company B. This involves:
Journal Entry in Company A:
- Debit an “Intercompany Receivable Account” with the relevant payroll costs attributed to Company B.
- Credit the corresponding expense accounts such as Wages, Payroll Taxes, etc.
Journal Entry in Company B:
- Debit the appropriate expense accounts (e.g., Wages, Payroll Taxes) to recognize the payroll expenses.
- Credit an “Intercompany Payable Account” to acknowledge the liability owed to Company A.
Settle Balances: Periodically settle the intercompany balances through a cash transfer or other intercompany transactions to ensure cash flow remains accurate.

Option 2: Umbrella Payroll Account (Consolidated Payroll Management)

Single Payroll Service: Explore whether Gusto or another payroll provider can accommodate an umbrella arrangement where both companies can be managed under a single payroll setup while maintaining separate reporting for compliance.
Separate Reporting: Ensure that both Company A and Company B’s payroll activities remain clearly separated in reports, essential for tax filing and auditing purposes.

Additional Considerations

Legal and Compliance: Consult with a payroll or tax professional to ensure that your payroll processing aligns with federal, state, and local tax regulations, especially given the ownership structure and EIN considerations.
Tax Implications: Evaluate the tax implications that arise from these intercompany transactions. The IRS requires that transactions between commonly owned businesses

One response

APAdmin

25 February 2025 at 8:23 PM
When managing an employee shared between two separate QuickBooks Online (QBO) companies with different Employer Identification Numbers (EINs), the process can indeed become a bit tricky, especially when trying to remain compliant with tax regulations while efficiently managing payroll costs. Below are some options and best practices to consider for the situation where an employee works part-time across two entities:

Option 1: Intercompany Journal Entry
1. Payroll Processing: Continue processing the employee’s payroll through Company A using Gusto, as you have been doing.
2. Tracking Hours: Maintain a detailed record of the hours the employee works for both Company A and Company B. This can be done using timesheets in QBO or through another time tracking solution.
3. Monthly Journal Entries: At the end of each month, you could make a journal entry in Company A’s books to allocate a portion of the employee’s payroll expenses (including wages, taxes, and any benefits) to Company B. This involves:
4. Journal Entry in Company A:
  - Debit an “Intercompany Receivable Account” with the relevant payroll costs attributed to Company B.
  - Credit the corresponding expense accounts such as Wages, Payroll Taxes, etc.
5. Journal Entry in Company B:
  - Debit the appropriate expense accounts (e.g., Wages, Payroll Taxes) to recognize the payroll expenses.
  - Credit an “Intercompany Payable Account” to acknowledge the liability owed to Company A.
6. Settle Balances: Periodically settle the intercompany balances through a cash transfer or other intercompany transactions to ensure cash flow remains accurate.
Option 2: Umbrella Payroll Account (Consolidated Payroll Management)
1. Single Payroll Service: Explore whether Gusto or another payroll provider can accommodate an umbrella arrangement where both companies can be managed under a single payroll setup while maintaining separate reporting for compliance.
2. Separate Reporting: Ensure that both Company A and Company B’s payroll activities remain clearly separated in reports, essential for tax filing and auditing purposes.
Additional Considerations
- Legal and Compliance: Consult with a payroll or tax professional to ensure that your payroll processing aligns with federal, state, and local tax regulations, especially given the ownership structure and EIN considerations.
- Tax Implications: Evaluate the tax implications that arise from these intercompany transactions. The IRS requires that transactions between commonly owned businesses
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