Recent NACHA ACH Payroll Processing Changes: What Payroll Providers Need to Know. A Whitepaper

Transcription

1 Recent NACHA ACH Payroll Processing Changes: A Whitepaper

2 Table of Contents I. Executive Summary II. III. IV. Same-Day ACH Payroll Processing Credits Same-Day ACH Payroll Processing Debits 3rd-Party Registration V. NACHA Audits VI. VII. Conclusion About Cachet Financial Services

3 I. Executive Summary The National Automated Clearing House Association (NACHA) has recently announced by several changes that will significantly affect ACH payroll processing and payroll providers. The purpose of this whitepaper is to bring you up to speed and clarify what these new rules mean for you. This whitepaper covers the following: Same-Day ACH Payroll Processing Credits Same-Day ACH Payroll Processing Debits 3rd-Party Registration NACHA Audits

4 II. Same-Day ACH Payroll Processing Credits As of September 2016, NACHA requires the acceptance of same-day credits the transactions to place money into an account can be placed as a same-day settlement. On September 15, 2017, NACHA will require the acceptance of same-day debits. There s always been the desire to speed up payments. Employers want to see those funds in their employees accounts as soon as possible, without the float. Previously, ACH payroll processors conducted next-day transactions. They had to upload and provide information to the Federal Reserve the day before the settlement date, and could do so throughout the day. Two Processing Windows & The Real Deadlines For same-day ACH payroll processing, there are only two processing windows for settlement time: 1pm Eastern Time (ET) and 5pm ET. However, in order to process them in time, they have to be in to the Federal Reserve by 10:30am ET and 2:45pm ET, respectively. Then, the ACH payroll processor needs a buffer to do their processing so they can get it to the Federal Reserve in time. This means, same-day transactions need to be in to your ACH payroll processor by approximately 10am ET and 12pm ET, respectively. If the second window is missed, it will be a next-day transaction. This presents more of an issue for ACH payroll processors on Pacific Time who, in order to process same-day ACH payroll transactions in time for the first window, they would need to be completed by 6am PT. Though West Coast ACH payroll processors tend to start the day early, they don t start that early so getting same-day transactions by the second window (12pm ET/11am CT/9am PT) is the only realistic option though this could change depending on how much demand there is to processes ACH same-day transactions in the first window. On the other hand, West Coast ACH payroll processors can process next business day transactions up to 10pm ET/7pm PT, which many find more advantageous than same-day processing.

5 II. Same-Day ACH Payroll Processing Credits (continued) Higher Charges The Federal Reserve and NACHA have set up different ACH payroll processing rates for same-day transactions that are % higher than next-day, so you ll need to charge and budget accordingly. There s nothing different in terms of file setup, so ACH payroll processors just have to be more diligent in terms of setting the date for the transaction to avoid it going through as a same-day credit ACH when that is not desired by the client. Payroll systems are dependent on the payroll bureau telling it what date it wants to do the settlement. Most systems are direct deposit minus one, meaning they settle the day before the check date. Thus, payroll systems have to be updated for same day processing. Reputable ACH payroll processors are basically the middleman that don t make changes to the files but just process what is sent to them. Same Day Limitations Same-day credit transactions over $25,000 do not qualify. Additionally, international ACH (IAT) transactions are not supported. However, most company payrolls are well above this limit and are solely US-based, from our experience. An Emergency Service Because of the tight processing windows, additional charges and relatively small transaction limit, we consider same-day credit ACH payroll processing as an emergency, back-up service. To date, we ve only processed one same-day file and this was because the remarketer wanted normal 48-hour processing so sent in the file on Wednesday but then made an edit to the file but failed to re-approve it in time for next-day. We had already collected the funds by Thursday morning, so with some modifications we were able to do same-day processing to meet Friday payroll deadline.

6 III. Same-Day ACH Payroll Processing Debits On the debit side, as of September 15, 2017, it will essentially be the same as for credits. If you need to pull funds from a client, you ll need to process within those same windows as for credits. The difference is that, instead of taking risk of not getting funding for 1-2 days, you will have money the same day. The downside: no one is looking at speeding up return notifications. You may be able to push through a debit on the same day, but the notice of funds being available will be 48 hours. We ask people to upload on Wednesday for Friday for about 95% of their clients and 5% who have a lower risk profile on Thursday. If more submit for a collection Thursday morning, we get the collection Thursday evening vs. Friday morning. Our hope is that same-day debits allows more clients to upload on Thursday vs. Wednesday, giving them more of a cushion so they can compete more effectively against national payroll service bureaus and remarketers like Paychex and ADP.

7 IV. 3rd-Party Registration Beginning on September 29, 2017, NACHA will require that all payroll providers considered Originating Depository Financial Institutions (ODFIs) who have a bank process their ACH payroll transactions will have to register all of your payroll customers, referred to as third-party sender customers. NACHA claims that the registration process will promote consistent customer due diligence among all ODFIs, and serve as a tool to support NACHA s continuing efforts to maintain ACH Network quality. Registration for each of your payroll customers includes: Your company name and contact information Name and principal business location of each third-party sender (i.e. all of your customers) Routing number: specifically, the ODFI s routing number as included in the Originating DFI Identification field used in ACH transactions originated for the third-party sender Company identification(s) of the third-party sender This registration can be a pain, especially for those unaware that may need to do it and may have to do so last minute. Failure to do so could lead NACHA to fine your bank, and for your bank to fine you. You will also need to update this information on a regular basis. The good news for Cachet customers: we ve already collected this information on behalf of our payroll service bureau and remarketer clients because California required that we do so back in Thus, we can register our customers customers, and keep this information updated at no extra charge.

8 V. NACHA Audits NACHA requires audits be conducted to ensure that payroll providers adhere to all NACHA rules and regulations, detailed in a booklet slightly larger than a dictionary. To conduct the audit, NACHA will tell the bank to audit their payroll company customers but many banks either do not want to conduct these audits and risk alienating their clients, or they will charge $15,000 to $20,000 to do so. Another way we shield our customers from fines and other regulatory headaches, is to audit our payroll provider clients at no charge. We just request missing information. This saves our customers time, money and headaches.

9 VI. Conclusion If your bank or other ACH payroll processor is failing to keep you updated on these changes, to help you with 3rd party registrations and to make NACHA audits a breeze for you, let s talk if you re open to making a change that could make your life a lot easier. There will be more NACHA changes and we can help you navigate those challenges as they arise. VII. About Cachet Financial Services Cachet Financial Services is a national company providing a variety of services for mid-market to large corporate clients and the payroll service industry, including ACH payroll processing, Quantum client-by-client payroll reconciliation, and wire services including drawdown Fedwire. Cachet is part of the FBG Holdings family of companies that provide payroll related services to approximately 110,000 employers nationwide and process over $140 billion dollars annually. Cachet offers competitive rates and fees for each of their customized services, presenting payroll service bureaus and corporate clients with an alternative to using traditional banks for their ACH payroll processing needs. More: cachetservices.com VISIT US cachetservices.com CALL US