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Risk of Direct Deposits

Reducing or Eliminating the Risk of Direct Deposits for Payroll Processors #

Overview #

This knowledge base article addresses the risks associated with direct deposits for Payroll Processors and provides two methods to reduce or eliminate these risks. As a Payroll Processor, acting as an intermediary for direct deposits can expose you to significant financial risks, particularly in cases of Non-Sufficient Funds (NSF).

Key Risks #

  • Drafting funds from clients into your bank account and then disbursing to employees
  • Potential NSF notices received days after employees have been paid
  • Financial liability if clients fail to reimburse NSF amounts

Risk Reduction Methods #

Method 1: Adjusting Draft Timing #

Changing Days in Advance to Draft Employer’s Bank Account #

  1. Use a common ACH Processor’s Bank account as an escrow account
  2. Set a minimum of 3 days advance drafting to reduce risk
    • This aligns with NACHA rules allowing banks up to 3 days to report NSF
  3. If NSF occurs before employee payment, request ACH processor to cancel payments

ProPay’s Additional Protection #

  • Automatically adjusts employee payment dates if payroll information is delayed
  • Example:
    • Pay date: 04/30
    • Normal draft date: 04/27 (3 days in advance)
    • If client provides info on 04/29, employee payment shifts to 05/02

Method 2: Direct Employer Bank Deposits #

Paysoft LLC’s Alternative Method #

  1. Creates separate ACH file for each client’s direct deposits
  2. Three options for file submission:
    a. Email file to client for bank submission
    b. Client downloads file from ProPay web interface
    c. Direct submission to client’s bank (with access)

Advantages #

  • Eliminates NSF risk for Payroll Processor
  • Compatible with major banks (Bank of America, Chase, US Bank, Wells Fargo, First Citizens, etc.)

Troubleshooting #

If you encounter issues or have questions about implementing these risk reduction methods:

  1. Check the help menu in ProPay payroll software
  2. Visit the Paysoft website: https://www.paysoft.com
  3. Contact your bank to confirm ACH file acceptance and submission process

Feedback #

We value your input to improve our services. Please provide feedback on this documentation or our risk reduction methods through:

  • The feedback form in ProPay software
  • Our website contact form at https://www.paysoft.com/contact

By implementing these risk reduction strategies, Payroll Processors can significantly decrease their exposure to financial risks associated with direct deposits. Choose the method that best suits your business needs and client relationships.