The Flexibility and Benefits of Same-Day ACH
As of September 23, 2016, businesses using direct deposit to pay employees get an additional benefit: same-day automated clearinghouse (ACH) service. Employers now have the flexibility to pay staff via direct deposit on the same day they initiate payroll.
More than 80 percent of U.S. companies use ACH, an electronic batch-processing system, to administer direct deposits and direct payments. NACHA, the Electronic Payment Association, notes that ACH encompasses "the deposit of funds for payroll, employee expense reimbursement, government benefits, tax and other refunds, and annuities and interest payments." In 2015, over 24 billion electronic payments occurred via ACH in the United States.
Until now, ACH payments have been settled on the next business day. Employers paying wages through direct deposit would need to initiate the payments from their bank at least one banking day prior to the employees’ payroll check date. But with same-day ACH, employers have the ability to send direct deposit payments to their employees, and employees can receive these payments, on the payroll check date.
Benefits of Same-Day ACH
Same-day ACH offers benefits to both businesses and employees. For employers, they now have:
- Greater payday accuracy by ensuring that workers are paid the correct amount, even if last-minute changes occur;
- Functionality for virtually all types of ACH payments, including both credits and debits (debits starting 9/15/17);
- Freedom from the hassle and expense of cutting paper checks if the business runs late with payroll files;
- Easier payment of final wages for terminated employees, since funds can be paid via direct deposit;
- More accurate payment to hourly workers, allowing extra time to figure time worked; and
- Quicker reversals of payment errors once debit transactions can be sent as a Same Day ACH transaction.
Employees with direct deposit will find that same-day ACH provides:
- Freedom from the inconvenience of dealing with a paper check if the employer runs late with payroll and can't fulfill electronic deposit;
- Immediate access to final wages upon termination, since the employer can use the normal direct deposit method to wrap up payment for departing workers.
NACHA notes that same-day ACH will be a boon to companies or individuals that rely on:
- Same-day payrolls, because it supports the need to pay hourly workers, allowing flexibility for late and emergency payrolls and missed deadlines, and giving workers quicker access to their pay;
- Business-to-business payments, enabling faster settlement of invoices, with remittance information;
- Quicker bill payments using both ACH credits and debits, so consumers can pay bills on time and receive faster crediting for late payments; and
- Account-to-account transfers, with faster crediting for consumers who move money among multiple accounts.
While many types of ACH payments will be eligible for same-day processing, international transactions and high-value transactions above $25,000 will not be eligible for same-day ACH.
Financial institutions that follow NACHA's guidelines for implementing same-day ACH will follow its three-phase approach:
- First phase – Includes credits of up to $25,000 starting on September 23, 2016. If a financial institution receives a same-day credit, it will be required to post it to the receiver's account by the end of its processing day, which varies by institution.
- Second phase, effective September 15, 2017 – Same-day ACH debits will also be available.
- Third phase, effective March 16, 2018 – Requires financial institutions to make funds available to the receiver by 5 p.m. local time, although some will voluntarily make funds available by 5 p.m. in the first phase.
Businesses will have to gear up to use same-day ACH. Find out whether your financial institution will offer the service, and if so, whether your payroll software will need programming changes. NACHA's online resource center has a wealth of information to assist employers in this beneficial shift to quicker, more accurate payroll completion. Paychex also offers Direct Deposit via ACH, and its experts can guide your business in adopting same-day processing.