A payroll provider generally has what could be described as a popular job. Who doesn’t love payday? But few people outside of the industry can appreciate how difficult it can be to get payday right.
A paycheck can include money flowing in many different directions – not all of it necessarily welcome. Payroll deductions can range from perks like a savings plan, an employer-subsidized gym membership or a matching retirement contribution, to the unpleasant, such as court-ordered garnishments for unpaid debts, including child support and alimony. These are scenarios that can throw a wrench into an otherwise streamlined direct deposit payroll process if your system is not capable of managing the multi-destination payroll stream.
Not all ACH payroll providers can help companies make contributions to 401(k)s or submit mandatory payments like court-ordered child support or back taxes. Here are a few of the payroll tributaries that can leave you writing checks and licking envelopes if your direct deposit provider is not set up to easily manage them:
According to the IRS website, the maximum contribution for 401(k) plans in 2019 is $19,000. This is an increase from the 2018 tax year contribution of $18,500. With the flexibility to save any amount up to the limit above, employees can set up an automated direct deposit system with select ACH payroll providers. This allows them to determine their payments and have them deducted directly from their paychecks.
Child Support Payments
Fewer than 44% of parents who were owed child support payments in 2015 received the full amount, according to the U.S. Census Bureau. Each state has its own method of calculating child support payments and payment calculation can be a lengthy court process. The penalties for nonpayment often include fines or even jail time.
Having a direct deposit provider that can get court-ordered child support payments to a state disbursement unit (SDU) automatically will save you a lot more than a stamp.
Unlike child support, payments for back taxes owed the IRS can be withheld from a paycheck without a court order. The IRS can direct an employer to garnish an employee's salary.
Student Loan Defaults
The holder of a student loan in default can order an employer to withhold up to 15% of a worker's disposable pay for repayment without court order.
Finding the right provider
Not all ACH providers are able to support garnishment, 401(k) payments or other third-party payments. If you have an ACH provider who can't automate such payments, you'll end up with the funds being deducted from an employee's salary, but left in the employer's account. Those payments will have to be made one by one.
“If you can stick it on a paycheck, we can move it.”
At Cachet, our state-of-the-art ACH processing software can get all of your payroll funds deposited where they need to go, whether you need to accommodate garnishment payments, 401(k) contributions or other third-party payments.
Our ACH processing doesn't get stuck on third-party payments. It's automatic, secure and headache free. No stamps or envelopes required.