Peer to Peer Payment not for Payroll

Peer to Peer Payment (Venmo, Zelle, Cash App etc.) is not for Payroll.

When choosing a payroll service for your household employee make sure your service offers direct deposit via ACH transfer even if you intend to cut your own checks. Some “payroll” services are cutting this service out of their offerings, and encouraging clients to send payment to employees through peer-to-peer services such as Zelle, Venmo, or Cash App.

Peer to Peer payments are a tremendous convenience. They move money fast and easily. But they are not designed for employee payroll. Before you consider using an app to pay your employee, please consider the pitfalls.

1. Lack of Legal and Tax Compliance:

  • Tax Reporting: P2P apps are not designed for tax reporting purposes. You are relying on your “payroll” service to calculate taxes on an amount that must line up to the penny with what you are sending on an outside app. Doubling information is prone to error.
  • 1099-MISC Forms: If you misclassify employees as independent contractors, you could face significant penalties. Payments over $600 a year can trigger the IRS to send 1099-MISC forms to your employee, with the assumption that your employee is an independent contractor. This may cause confusion regarding your employee’s status as an employee that they will have to sort out with the IRS.

2. Limited Record-Keeping:

  • Payment History: P2P apps may not provide detailed transaction records, making it difficult to track payments and resolve disputes.
  • Audit Trail: In the event of an audit, you will need comprehensive records to demonstrate compliance.

3. Security Risks:

  • Data Privacy: P2P apps may not have the same level of security as dedicated payroll software, potentially exposing sensitive employee information.
  • Fraud: There is a higher risk of fraudulent activity with P2P apps, as they may lack robust security measures.

4. Employee Relations:

  • Professionalism: Using a P2P app can undermine the professional nature of the employer-employee relationship.
  • Payment Delays: P2P transfers can be subject to delays, causing inconvenience for employees.

Best Practices to pay your household employees: To ensure legal compliance, accurate record-keeping, and employee satisfaction, use dedicated payroll software or a professional payroll service. These solutions provide:

  • Tax Compliance: Automatic calculation and withholding of taxes.
  • Record-Keeping: Detailed transaction history for audits.
  • Security: Robust security measures to protect sensitive data.
  • Employee Satisfaction: Timely and accurate payments.

By choosing a proper payroll solution, you can streamline your payroll process, minimize risks, and maintain a positive employee experience.

Savvy Nanny will never suggest you pay your employee via a third-party peer to peer app. Your payment security and certainty that your payments match what you report to the IRS are too important.