The sudden collapses of Silicon Valley Bank and Signature Bank left businesses across the US scrambling to make payroll. That’s because when the government seized the banks, businesses were immediately blocked from accessing the funds needed to pay their people. This was a huge problem that dominated the headlines. Business owners have legal and ethical responsibilities to get their people paid in full and on time. Failing to do so could result in lawsuits and significant financial distress for both employees and the business. Simply put, not making payroll could close businesses and force people into deep debt through no fault of their own.
The government did step in to backstop Silicon Valley Bank and Signature Bank depositors. Bank accounts were made whole and many businesses were able to make payroll on time. But that’s not where the story ends.
The events of the last few weeks exposed the need to have multiple banking accounts, with funds in each sufficient to make payroll. But, few know that making payroll is also a function of the ability of the payroll provider to process the funds. Just as you need to have multiple bank accounts, your payroll processor needs to have a redundant banking system in place.
What is redundant banking and why is it so important?
Business owners need bank accounts to hold the funds that ultimately get paid out to workers – we all know that. But there’s another – and lesser known – banking process that small business owners should think about—the bank partner that their payroll processors use to move that money around.
Companies that provide payroll services should have a redundant system of leading banking partners in place. That way, if the primary banking partner encounters issues, as we just saw during the collapse of SVB, there’s still a backup in place for business owners to wire funds and get teams paid. It’s in everyone’s best interest to not have a single point of failure, especially for companies that provide payroll services.
Redundant banking isn’t just important if a bank fails or goes into receivership. If your bank encounters a service disruption or a DDOS attack, or any number of other issues that are out of your control, you need a payroll provider with more than one bank partner. That way, you don’t lose your ability to receive and distribute funds.
How redundant banking works at Gusto
Payroll companies have to pay people. It’s as simple as that. That’s what we’re here to do. And here at Gusto, we’ve had redundant banking in place for years now, with banking partners including JP Morgan Chase and PNC. That means, if one bank experienced a disruption of any kind, we would still be able to run payroll and support our customers. It’s a deep investment of time and engineering resources to build a redundant system of banking partners. But it’s an absolutely essential commitment we’ve made to safeguard our customers’ hard-earned money and livelihoods.
What Small Businesses Can Do
If you’re a small business owner, there are steps you can take to make sure your payroll provider has safeguards in place to protect you and your money. If you’re about to enroll with a payroll platform, make sure you:
Who are your banking partners for payroll processing?
What redundancies are in place in case something happens to your primary banking partner?
Ask to see the section of their website where they spell out their commitment to redundant banking practices
Gusto customer and Prisidio co-founder and CEO Glenn Shimkus hit the nail on the head when he said the term of the year will be “redundant banking.” It’s a reality that too many small businesses had to experience the hard way through no fault of their own. Whether it was because they banked at Silicon Valley Bank and Signature Bank, or because their payroll provider did.
Our customers count on us to help them take care of their teams. To pay their people. And we make sure that happens—not just during the good times, but in challenging times too. Small businesses deserve that support – and more. That’s why we believe redundant banking should be the industry standard among payroll providers.
