What Does Payroll Impounding Mean?

Payroll Impounding is a useful method employers can use to stay on top of their business and employee’s tax responsibilities - so what does it entail exactly? Payroll Impounding is the system of pulling all payroll withheld tax balances into a separate “impound” account to be held. When it is time to disburse funds to the proper government entities, this would be done so directly from the impound account held by your payroll provider. This means that:

  • The employer does not have to hold the funds within their own account and ensure that they are kept secure 
  • Budgeting becomes easier and accurate, especially considering the fact that tax rates change frequently

Without an impound account, everything is processed directly from the employer’s account which means that once payroll is processed, disbursements go directly from the employer account to the employees, government entities, and vendors as individual transactions. This would mean that the employer does still need to stay on top of all the disbursement and tax sums to ensure there are enough funds in the account come time. Thus, having a separate impound account does have a clear benefit in that it takes much of the headache off of the employer and allows them to focus on other areas of the business. 

It should be noted that in the case your payroll service fails to complete the disbursements on your behalf you will be held directly responsible. So while it is always best practice, thorough research and reputation is recommended when choosing a payroll provider, especially if you plan to entrust them with an impound account.