Performing Same Day Payroll The Right Way

Performing Same Day Payroll The Right Way

Most employers now use ACH transactions to compensate their employees. ACH, or Automated Clearing House, comes in the form of electronic payments, direct deposit, bill pay or direct debits. One of the greatest benefits of ACH is that it allows for same day payroll. Below are some tips for doing it correctly.

How Do Same Day Payments Work?

To understand this type of payment, you must first understand ACH. The Automated Clearing House is a network which allows funds to be transferred between banks. It is subject to rules which ensure the transfer is made hassle and error free, and that the financial funds and data are protected from fraud. The info used in the processing of ACH transfers are the same as that which appears on a traditional paper check. This includes the account number, name of the account holder, amount and routing number.

The greatest benefit of ACH payments is the speed with which they can be processed. Since funds are transmitted electronically a number of the traditional steps necessary for processing a paper check are bypassed, and in most cases the funds will be made available within one or two business days. Same Day payment accelerates this process even faster, allowing the payment to be made available on the same day it is issued. This is accomplished by incorporating extra ACH batches within the schedule for the day. With more batches, a transaction that is initiated in the morning can be made available by the afternoon.

How To Set Up Same Day Payments

Employers must first decide what type of ACH processing method they wish to use. These transactions come in two forms, which are ACH debits, where funds are pulled, and ACH credits, which involve funds being pushed. For the majority of small businesses, that don’t wish to give out their banking details to clients, and which are not big enough to appear in the system directories of banks, the best solution is to utilize ACH debits.

An ACH debit allows clients to provide a service provider with their account details, with an authorization that allows either a recurring or one-time payment to be made. However, the initial phase of same day payment is only reserved for credits, between American banks. International transactions are not included as of yet, so for an employer who hires an employee outside the U.S., additional arrangements must be made.

During phase two, the business owner can initiate a same day debit, which means that money can be taken from the account of a customer. Like phase one, these transactions are limited exclusively to American banks, and are restricted to no more than $25,000. Although the funds will be withdrawn on the same day, this does not mean that the recipient account will be funded within the same time period. This is because the banks are still allowed to hold onto the funds for a few days if they wish.