Managing Shared Employees Across Multiple QuickBooks Online Companies
When managing businesses with distinct QuickBooks Online (QBO) accounts, particularly when they share an owner, unique circumstances often arise. One such situation involves an employee working for two separate entities, each with its own Employer Identification Number (EIN). Here’s an insightful examination of this scenario and some strategies for managing payroll efficiently.
Understanding the Scenario
Consider a setup where Company A employs a part-time worker and processes payroll through Gusto. Company B, on the other hand, doesn’t have its own payroll system set up. Recently, the employee started dedicating a portion of their time to Company B’s tasks. Both companies belong to the same owner, and this shared ownership is reflected in combined personal tax returns.
Exploring the Options
Faced with this situation, business owners often find themselves pondering the best approaches to manage payroll without unnecessary expenses. Setting up a separate payroll account in Gusto for Company B might seem excessive, especially when the hours worked are minimal. Here are a few options to consider:
- Journal Entries for Payroll Allocation
A practical solution could be to record the payroll expenses incurred by Company B through a monthly journal entry. This approach involves tracking the employee’s time spent on Company B’s projects and then making a corresponding entry from Company A’s payroll expenses to Company B’s records. This not only keeps your Accounting neat but also avoids the hassle of creating multiple payroll accounts.
- Consider an Umbrella Payroll Account
Another potential strategy could be creating an umbrella payroll account that spans both businesses. This setup would allow for a consolidated payroll experience, potentially simplifying the administrative workload. However, this may require consulting with an accountant or a payroll specialist to ensure compliance with tax regulations and to identify the feasibility based on your specific circumstances.
- Seek Advice on Industry Best Practices
It’s always wise to stay informed about standard practices in your industry or consult with financial advisors. They can offer tailored advice, ensuring that your payroll processes are efficient and compliant with all relevant laws and guidelines.
By thoughtfully considering these options, you can effectively manage the payroll of an employee shared between two distinct QBO companies. Employ a strategy that is both cost-effective and administratively sound, ensuring smooth business operations.
One response
Navigating payroll for an employee shared between two companies can indeed be complex, especially when considering compliance and Accounting best practices. You’re on the right track by considering various options, but let’s refine those ideas to ensure you’re compliant with payroll regulations while keeping costs under control.
Intercompany Billing or Reimbursement: You can manage this scenario through intercompany transactions. Here’s a step-by-step guide:
Time Tracking: Have the employee track the hours worked separately for each company. A shared digital solution like TSheets or Clockify can streamline this process.
Reimbursement or Billing Agreement: Company A, using Gusto, can process the full payroll and subsequently invoice Company B for the hours worked by the employee at Company B. This would mean that Company B reimburses Company A.
Journal Entries: In the financial books of Company A, record a journal entry to debit an intercompany receivable account and credit payroll expenses for the portion of the employee’s time worked for Company B. Conversely, in Company B, you should debit payroll expenses and credit an intercompany payable account.
Employee Leasing: As an alternative, consider setting up an employee leasing arrangement. Company A could formally hire the employee and lease them to Company B. This simplifies paperwork and ensures that Company A remains responsible for all payroll compliance, while Company B compensates Company A as per an agreed-upon fee.
Shared Services Arrangement: Another approach is creating a shared services agreement, where Company A provides certain services (like payroll processing) to Company B, including employee utilization. This formal arrangement should detail compensation and responsibilities, ensuring clarity for both parties and compliance with IRS guidelines on related entity transactions.
Umbrella Payroll Account: While it’s conceptually appealing to have a unified payroll system, legality and Accounting standards mean this can’t truly be ‘combined’ without merging legal entities. However, software solutions offering umbrella-like management for multiple EINs aren’t widely available for this purpose, primarily due to regulatory requirements and separation of corporate liabilities.
Consult a Professional: Especially given that both companies impact a single tax return, involving a CPA or tax attorney can help navigate specific compliance requirements and ensure that neither the IRS nor state tax authorities see this as income shifting or another issue.
By balancing practical steps with compliance and cost-efficiency, you can handle the payroll requirements effectively. Each option has unique benefits, so choose one aligned