ACH Payroll Processing & Fedwire Blog

ACH Payroll Processing & Fedwire Blog

Payroll Provider Due Diligence Best Practices

Wednesday, March 22, 2017
Payroll Provider Due Diligence Best Practices

Considering how competitive the market is for bringing on new clients, it can be easy for payroll providers to lose sight of the risks. Those who are not careful with risky new clients can get stuck with NSFs, get in the crosshairs of the FBI, or even go bankrupt.

We recommend the following ACH direct deposit payroll processing due diligence best practices to minimize these new client risks.

Do Not Offer ACH Payroll Processing Right Away

We recommend offering this only after 90 days or at least 2-3 payrolls so that you can establish trust and prevent NSFs. We understand that this can be difficult, but you can have new clients wire the funds, confirmed funds or pre-funding 3-4 days prior to payroll.

Bank Verification

A big thing to watch out for when taking on a new client is if they are running their business out of a consumer account. You need to make sure you’re debiting from a business account. Banks allow a 60-day  non-authorized return window on consumer accounts vs. a 48-hour window for business accounts.

We’ve witnessed incidents where, on day 59, the payroll provider was given notice by the bank that there were unauthorized transactions (R05, R10), resulting in the payroll provider having to pay back all the payrolls processed in that time.

When doing direct deposits, you’ll also want to ensure that all or most payments are not being made to debit card accounts – reversals are not permitted on debit card accounts.

Impound Taxes Made to Direct Deposit Accounts

When doing direct deposits, we recommend that you impound payroll taxes for your clients. Certain taxes are not due right away unless they accumulate in large quantities, including unemployment and FUTA. If there’s an NSF, then you’re at least holding their payroll taxes, which gives you some protection and leverage.

Site Visits & Background Checks

Taking on out-of-state clients outside is risky. If you’re located in Southern California, why would you take on a client from Chicago when they have so many local options, not to mention the national providers?

We recommend that you only accept new clients that you can visit, so you can get to know them better, meet their management team and get a feel for their business.

Then we recommend running both a credit and background check to understand their financial and business standing.

Don’t Get Burned

Lining up new clients is critical to long-term growth, but taking on the wrong clients can sink your business. These are some of our most important recommendations, but there is more so let us know if you’d like to learn more so you don’t get burned.

Contact us to learn more about payroll provider due diligence best practices


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