A payroll-clearing account is a business checking account set up specifically to handle payroll and payroll-related transactions, such as paying taxes and garnishments. The reasons for the setting up a payroll checking account are security and organization.

Security

By setting up a separate account for payroll, a company can limit the exposure to the main checking account by both outsiders and internally. Outsiders may include a payroll-processing partner as well as unscrupulous persons.

Organization

Especially in large companies, segregating payroll makes it easier to keep track of payroll activity and bank reconciliations with a separate account.

On-Time Banking

Since the exact cost of payroll each period is calculated in advance, the company need not move more cash than is necessary from a line of credit or savings account. This ties up no more company funds than is necessary to cover payroll. In theory, this means within days of paying payroll, the account should have a zero balance.

Company Size

Typically a payroll-clearing account is used by larger companies with many employees. Smaller companies may find it an extra accounting burden to keep a separate account just for payroll.

Cost

The direct cost of a separate payroll account is largely dependent on the bank. Many banks require a minimum balance to avoid bank fees, but your bank may waive those charges provided the company's main account or accumulated bank activity remains at a specified level.

Source:

Duke University General Accounting Procedures