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Payroll and Accounts Payable: Essential friends and allies

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in Office Management,Payroll Management

Payroll and Accounts Payable should talk early and often. So say Billy Meyerkorth, payroll manager at  American Century Investments, and Jodi Parsons, payroll and accounts payable manager at Lifespace Communities.

Meyerkorth and Parsons led attendees at the American Payroll Association’s annual Congress in a discussion on how these two departments have more in common than they think.

Worker status issues

It is acceptable for a worker to be an employee and an independent contractor at the same time, Meyerkorth said, but you should be cautious about dual status, since it’s usually a red flag for the IRS. The key, he added, is for Payroll to know whom Accounts Payable is paying and vice versa. What to avoid: dual payments to the same person.

To check for dual status, Parsons advised checking for matches in names, addresses, Taxpayer Identification Numbers and bank accounts. If a match or near-match arises, you’ll have to do some investigating, she said, since a near-match could arise if family members work for the same company. You may need to build these computer programs yourself, she cautioned.

TROUBLE AHEAD: Dual status often arises when a terminated employee comes back to train his or her replacement. Both Meyerkorth and Parsons insisted that the terminated employee is still an employee. Be sure to communicate this to all involved, including the terminated employee, the legal and HR departments and managers, Meyerkorth said. Then, to correct the payment error, post the earnings to Payroll, catch up on FICA withholding and don’t issue a 1099-MISC to the terminated employee, Parsons added.

Reimbursements and multiple systems

Relocation packages to new employees or educational assistance payments can be made through either Payroll or Accounts Payable (or both). Meyerkorth and Parsons advised Payroll and Accounts Payable to work together to communicate the company’s ­training and education policy. Payroll should let Accounts Payable know the annual limit in the tax code for tax-free educational assistance—$5,250.

SHORT CUTS: Relocation packages can be particularly troublesome because employees usually submit a mix of tax-free and taxable expenses.

Unless there’s an agreement to the contrary, you can treat the entire payment as a taxable bonus. That’s easiest for Payroll, Parsons acknowledged, but it can leave the employee a little short if part of the package is tax-free. As for educational assistance, Payroll can search Accounts Payable’s files for school names, she added.


Payroll isn’t always going to know when the company is being sued, and even if it does, lawyers may not want to share confidential information regarding a settlement with Payroll and Accounts ­Payable, Parsons said. You may ask to see the documents, she noted. Nevertheless, good coordination between the two departments is essential, since settlements or jury awards can be a mix of taxable wages, compensatory damages and nontaxable damages.

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