Revisiting the Flexibility and Benefits of Same-Day ACH as Third Phase of Service is Implemented

• The third and final phase of same-day automated clearinghouse (ACH) implementation began on March 16, 2018.
• There are many benefits for employers that use direct deposit to pay employees.
• The third phase requires financial institutions to make credits received in a same-day ACH window available for withdrawal by 5 p.m. local time.

Businesses using the nation's automated clearinghouse (ACH) service to move money between bank accounts are reaping the benefits of same-day ACH to pay staff via direct deposit on the same day they initiate payroll.

NACHA, the Electronic Payments Association, developed a three-phase approach to assist financial institutions in implementing same-day ACH.

The first phase, which began September 23, 2016, made available credits of up to $25,000. Financial institutions receiving same-day credits were required to post them to the receivers' accounts by the end of their processing day. Phase two, which took effect September 15, 2017, made same-day ACH debits available.

The third phase, which took effect on March 16, 2018, requires financial institutions to make all eligible ACH credits ($25,000 and under, not international ACH transactions) received in a same-day ACH window available for withdrawal by 5 p.m. local time. Previously, they had to make funds available by the end of their processing day.

Prior to same-day ACH, automated clearinghouse payments were 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 can 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 is 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.

Same-day ACH offers many benefits for employers, including:

• More accurate payrolls, 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;
• 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 same-day ACH transactions.

Employees with direct deposit often 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; and
• Immediate access to final wages upon termination, since the employer can use direct deposit to finalize payment for departing workers.

Paychex will continue to monitor same-day ACH developments. Note that Paychex offers direct deposit via ACH, and can guide your business in adopting same-day processing.

A previous version of this article was published Nov. 8, 2016.