The National Automated Clearing House Association (NACHA) — The Electronic Payment Association announced that same-day ACH becomes effective on Friday, September 23, 2016. Employers and payroll professionals will be among the first to be able to effectively use same-day ACH for faster payment of employee wages.

Currently, direct deposits of wages settle within one to two days from employer submission to the originating financial institution (ODFI) to employee receipt of wages. This is referred to by NACHA as "classic ACH." For "same-day ACH," payments settle within the same day of submission.

With same-day ACH, employers will be able to use direct deposit for wage payments that must be made to employees immediately, such as severance pay and final wages required to be paid within 24 hours of employee termination. Same-day ACH may be less expensive than the overnight delivery costs employers sometimes incur in meeting their rapid pay requirements.

Direct deposit of wages primary use for same-day ACH

Employers may choose to use same-day ACH for several reasons:

— Missed payroll deadline. In the case of a missed payroll deadline, same-day ACH will allow employers and their processors an opportunity to recover from the missed deadline and still get employees paid on payday. For example, an employer that misses a Thursday deadline for Friday's payday may use same-day ACH to submit a payroll file on Friday morning and ensure direct deposit funds are available to employees on Friday.

— Paying hourly and/or temporary employees. Usually, there is a time lag between the reporting of hours worked and processing payroll for hourly workers. Sometimes payroll is processed prior to getting a final report of hours worked. The use of same-day ACH for payroll will shorten the time lag in either of these situations. For example, a final report for hours worked could be finished at the end of the day on Thursday, the payroll file submitted Friday morning, and direct deposit funds would be available to employees on Friday.

— Termination pay. Many employers have a need or are required to pay all wages owed to a terminated employee on the day of termination. The use of same-day ACH would enable this requirement to be met electronically without having to manually write a check or pay with cash.

Same-day ACH details

It is optional for banks to institute same-day ACH, so employers will need to contact their banking institution to see if this will be an option for payroll purposes.

ODFIs will be able to submit files of same-day ACH payments through two deadline windows, such as:

— A morning submission deadline at 10:30 a.m. ET, with settlement occurring at 1:00 p.m. ET
— An afternoon submission deadline at 2:45 p.m. ET, with settlement occurring at 5:00 p.m. ET

The ODFI will determine the lead time necessary to execute same-day payments.

Banks may charge differently for same-day ACH payments than for traditional "classic ACH" payments, pricing as a premium service. NACHA does not set or regulate any fees charged to businesses; the cost to send and receive same-day ACH payments will be determined by the banking institution. The same-day ACH rule includes a "same day fee" on each same-day ACH payment, so that receiving banks (RDFIs) would recover, on average, their costs for enabling and supporting same-day ACH. Therefore, a bank that sends a same-day ACH payment has an increased ACH processing cost compared to sending a "classic ACH" payment.

Same-day ACH direct deposit payments are limited to payments of $25,000 or less per individual employee (does not apply to the total amount of the payroll file, but applies individually to each same-day direct deposit). Currently, more than 99% of ACH transactions are under $25,000.

Same-day ACH payments will be identified by coding "today's" date in the Effective Entry Date field - and meeting the processing deadline/windows defined by the payer's bank. In addition, the payer's bank may at its discretion, require payer clients to further show intent for same-day settlement using other methods, such as a same-day indicator in the Company Descriptive Date field. Same-day ACH payments may require a separate batch, and payment run timing may vary with same-day ACH payments compared to "classic ACH."

Potential risks to same-day ACH

As transactions move faster, so too will transactions that are erroneous or not due to an employee. Less time might be available to screen transactions for errors and to correct any errors.

Although all same-day ACH transactions will settle on the same day beginning in September, initially, some institutions may take longer than end of business day to credit some employees' accounts for same-day payroll direct deposits. Through 2017, banks will define same-day ACH funds availability. Timeliness of funds availability may have potential impact to cash position, and options/needs for borrowing, debt pay-down, and investments. By March 2018, all financial institutions must credit same-day payroll direct deposits to employees' accounts by 5:00 p.m. local time. NACHA notes that some banks are planning to implement funds availability early and also do a mid-day posting as well.

Limits on the use of same-day ACH

The US government will not be participating in same-day ACH starting on the September 23, 2016, effective date. Employers and payroll processors will not be able to send federal income tax withholding payments or other tax payments to the U.S. government as a same-day ACH payment. Also, same-day ACH cannot be used for international payments. Ineligible transactions (i.e., International ACH, single payments over $25,000, federal government payments) need to be excluded from any same-day ACH payment run.

Implementation of same-day ACH will occur in three phases

Phase one of the implementation (as detailed above) is effective on September 23, 2016; Phase two will become effective on September 15, 2017; and Phase three will become effective on March 16, 2018.

The implementation was designed as a three-phased approach in response to the feedback that NACHA received from an earlier same-day proposal. Spreading implementation across three phases would ease the industry's implementation effort, and allow the industry to acclimate to a faster processing environment with same-day ACH credits (i.e., payroll direct deposit) prior to processing same-day ACH debits (i.e., bill pay). Credits generally cause fewer exceptions and returns than debits, and so are viewed by many as a good way to gain initial experience processing same-day ACH transactions.

For more information on same-day ACH, go to the NACHA website.

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