New data shows many small business payrolls exceed the FDIC deposit insurance limits

Author: Luke Pardue + Tom Bowen

The sudden collapses of Silicon Valley Bank and Signature Bank – and the resulting chaos it created for small businesses – have raised questions about the federal insurance limit on bank deposits. Should the FDIC limit be raised to ensure small businesses are able to make payroll? Are there many small businesses’ total payroll amounts above the Federal Deposit Insurance Corporation’s current $250,000 limit per depositor?

Data from Gusto, payroll and benefits provider for more than 300,000 small and midsize businesses, suggests that indeed many are: Nearly half of small businesses with 50-99 employees have monthly payrolls above the $250,000 threshold. That rate jumps to 95 percent for businesses with more than 250 employees.

Percent of Small and Medium Sized Business With Estimated Monthly Payroll Exceeding FDIC Limits 

• 16% of companies with 25-49 Employees have monthly payrolls above the FDIC limit 
• 43% of companies with 50-99 Employees have monthly payrolls above the FDIC limit 
• 68% of companies with 100-249 Employees have monthly payrolls above the FDIC limit 
• 97% of companies with 250+ Employees have monthly payrolls above the FDIC limit 

*Estimated monthly payroll in February 2023 for salaried and hourly employees

If a small business has a payroll in excess of 250K and their bank fails, they can’t pay their employees. Based on the data above, it’s clear that the FDIC per depositor limit is inadequate to protect small businesses and their employees.  

On May 1, 2023, the FDIC even encouraged Congress to raise limits on bank accounts that businesses use for payroll — a move that Gusto stands behind. “At Gusto, we applaud the FDIC’s recommendation that targeted coverage is necessary to ensure payroll deposits are insured,” says Steve Abbott, Head of Public Policy & Government Affairs at Gusto. “It is essential to small businesses and their employees that payday is never at risk due to bank failures.”

As Congress and federal regulators consider changes to policy to prevent future banking failures, increasing the insured-deposit limit to a level that guarantees payroll amounts should be the first step they take. Gusto is prepared to be a resource to Federal policymakers, providing data to help determine the appropriate limit and thereby ensure small businesses can operate without interruption and hard working Americans are paid on time.

What else?  

The 250K insured deposit limit hasn’t been the only figure examined following the events of the last few weeks. Big and small businesses have realized the need to have multiple banking accounts – and their payroll processor needs to as well to have the ability to process payroll in case one bank fails. Read more on that here.