ACH Payroll Processing & Fedwire Blog

ACH Payroll Processing & Fedwire Blog

No Rest for the Wary: 4 Payroll Problems ... and 4 Effective Solutions

Friday, June 28, 2019
No Rest for the Wary: 4 Payroll Problems ... and 4 Effective Solutions

From ransomware attacks against payroll software licensors to ghost employees, to employees with a grievance and their company's routing number – a 30-second internet search makes it clear that worry is a second job for those in the payroll industry.

Here are just a few headlines:

“2 Bookkeepers, 9 ‘phantom’ employees charged with stealing $1M from Zirkle Fruit”

“Former Grady Hospital Payroll Director Sentenced for Embezzling from Grady"

“At least $2 billion in stolen wages was recovered for workers in 2015 and 2016”

Worse is the fact that whether you are a large payroll company, operating in multiple states, or a smaller business with a dozen employees, headlines like these are only one of the things keeping you up at night.

For Payroll Providers, Trouble Comes in Many Denominations

There are many ways for a payroll company to end up in trouble. The risks include:

  • Compliance / Regulatory Issues:

    Possibly in reaction to concerns around payroll fraud, a number of states have recently begun imposing expensive and time-consuming licensing requirements on payroll providers, requiring them to be licensed as “money transmitters.” These licenses can cost up to hundreds of thousands of dollars annually.
  • Errors:

    When you are in the business of handling other people’s money, there is no such thing as an insignificant error.  When those “other people” include a collection of taxing authorities, each with their own regulations and deadlines, the likelihood and cost of such errors only grows. It comes down to details, any of one of which can become a land mine if overlooked or mishandled.
  • Fraud:

    Payroll fraud comes in any many varieties and sizes, some crude, some sophisticated. From a disgruntled employee fraudulently using a payroll account and routing number to the improper use of impounded funds, a payroll provider has to be constantly on alert for criminal intentions.
  • Shortfalls:

    It doesn't matter how tight your payroll operation is: Unless you’re carrying a hefty reserve, a client shortfall can leave you in a tight spot, out of balance, or worse. NSFs are expensive and disruptive. Being out of balance can lead to bigger problems like fines, penalties and even criminal prosecution.

Here are four examples of problems brought to us by clients and prospects looking for better solutions than the ones they'd been given elsewhere.

Problem 1: Banks that Don’t Understand Payroll Services

One of our ACH services clients also had clients of her own who paid their employees with paper checks. She wanted an account she could write checks from, but, as a deterrent against fraud, she didn't want her clients’ banking information on the checks.

It was a service she wanted to offer and had been struggling with a way to do it, she told us. And her bank didn't have a solution.

Because she was a Cachet client, we were able to offer a solution through Quantum: an official bank check service that provides a fraud-proof paper check and detailed account reconciliation, including an alert for checks uncashed after a week.

We offer solutions tailored to the real problems that payroll providers have...

David Taub, Director of Sales for Cachet, says the reconciliation process for paper checks at many banks still requires a manual review of a check register to determine who got paid and when. That’s one of the reasons banks struggle to offer true reconciliation for payroll providers who make payments on behalf of multiple companies.

Banks typically do not provide reconciliation client by client, or double entry accounting that provides transparency between payroll and tax accounting.

Because of the complexities involved in working with payroll companies, payroll providers who go to banks for ACH payroll processing often find themselves paying more for less.

Problem 2: “We don’t want to touch the money”

Another client had just added payroll services and was looking to handle their new offering with the least amount of risk. "We don’t want an account with someone’s tax money in it," they told us. “We don’t want to touch the money.”

That's understandable. Tax impound accounts, where large sums of money sit for weeks or months before taxes are due, are an enormous source of liability and an easy target for fraud and “borrowing.” They're also at risk of becoming out-of-balance as a result of error.

With Quantum, we settle the funds in our account, process the ACH payments and keep accounts reconciled down to the smallest detail. It’s a risk-deterrent strategy that helps many clients sleep at night.

Problem 3: Costly and Time-Consuming Licensing Requirements

The prospect was a payroll company notified by Texas regulators that it was subject to licensing as a “money transmitter” – an unsupportable expense for a small payroll company.

With at least two states now requiring payroll processors to be licensed as money transmitters (and more expected to follow suit) many small and mid-size payroll providers are facing the possibility of hundreds of thousands of dollars in licensing fees, along with a burdensome approval process. Last September, a payroll processor was ordered to pay a $212,500 penalty to the Texas Department of Banking for violation of that state’s MTL regulations. Similar enforcement actions have been reported in Arizona, Utah, Colorado and Alabama.


While the regulatory landscape varies from state to state and the Independent Payroll Providers Association (IPPA) advises its members to consult with legal counsel to determine how licensing regulations apply in the states where they do business, some industry insiders have focused on language in the Texas orders that refers to the “settling of funds in your account.”

Cachet clients using Quantum do not hold or settle client funds in their own accounts. Instead, funds are held by Cachet. Cachet is exempt from MTL requirements under the exemption held by its bank. That suggests that in addition to its value as a risk deterrent, Quantum may provide clients with additional protection against a burdensome licensing requirement.

Problem 4: Out of Balance Tax Accounts

Sometimes the problem is one you didn’t see coming ... or one you overlooked. In the payroll business, little issues can multiply quickly. An impound account that gets out of balance or a dishonest employee can put a payroll provider at terrible risk. When you start getting notices from the tax authorities and you don’t have the money in your account, you can find yourself stuck between a rock and a hard place with bars for walls.

Quantum means your tax account is never out of balance. That’s an unmatched level of protection. At Cachet, we go to incredible lengths to support all of our clients. Whether we’re settling their funds or clients are settling their own, we provide multiple levels of security and accountability, and occasionally we go even further than that.

We Help Our Clients Overcome Problems

"We offer solutions tailored to the real problems that payroll providers have," says Taub. "All of our solutions for customers are very specialized."

"Cachet is in the problem solving business. It's why we designed our Quantum products for clients who want complete risk management control along with full-service ACH and settlement services. Deep reporting capability, reconciliation client by client and tax settlement services all help protect Quantum users against the biggest sources of payroll risk.

"We've been innovators in the payroll and payroll tax industries for decades and we are dedicated to providing secure, cost-efficient and innovative ACH solutions to our clients," says Taub.

To learn more about the risk mitigation advantages of Quantum, along with the service advantages of working with specialists dedicated to the payroll industry, give us a call or click on the link below. We've got answers.

Contact us today to learn more about Quantum Impound Settlement Services

Want to learn more?

Learn more about important news affecting the payroll industry here:

Our Partners