Early funds availability and direct deposit: Changes coming

Early funds availability is causing headaches for many employers. And it’s only the beginning.

Certain banks let workers access their pay earlier than the settlement date when they receive ACH credits toward customers’ accounts. So, if payday is Thursday, these banks make the money available to workers on Wednesday or even Tuesday.

But then what happens when an upset employee asks Payroll why his co-worker can already access his money when his direct deposit has yet to hit his account?

Yes, this is convenient for employees. But it can create issues for Payroll if a credit is made in error or for the wrong amount. And it can also cause employees to contact you with questions or concerns about their pay. Worse: They may even lose their confidence in direct deposit entirely.

Shifting liability

Nacha’s currently looking at ways to solve this problem.

In a recent request for information, Nacha asked stakeholders to discuss early funds availability through the ACH system. The intent: to determine if rules or limits for the practice are necessary.

And, as you might expect, Payroll industry leaders had some suggestions that could make things easier for you down the line. The National Payroll Reporting Consortium laid out exactly why specific regs would help Payroll pros deal with early ACH release.

In a letter to Nacha, the consortium focused on one vital change that would benefit Payroll. It wants to make banks liable for any payments given to employees in error because funds were made available earlier than the specified settlement date.

Currently, no recourse exists for employers if an ACH credit reversal can’t be processed because the employee has already received the payment.

New rules allowing employers to recover the amount of the ACH credit if a mistake is discovered after the fact would reduce the risk of early access to payments.

This would be a win-win for everyone:

• Employees still receive their pay ASAP, and
• Payroll would have fewer problems in case a reversal is necessary.

We’ll update you on any further developments from Nacha.