A disturbing trend has recently surfaced: payroll providers using banks for ACH direct deposit payroll processing have been notified by their bank that they will need to go through a registration with the National Automated Clearinghouse Association (NACHA) in order for the bank to continue processing their direct deposits.
Why Is This Happening?
Beginning on September 29, 2017, NACHA will require that all payroll providers—considered third-party processors who have a bank process their ACH payroll transactions—will have to register themselves and all of your payroll customers, referred to as "nested" third-party sender customers."
Thus, if you're a payroll provider that uses a bank for ACH payroll processing, then you're considered the third-party processor. This is not necessarily the case if you use an ACH payroll provider – more on that later in this blog...
NACHA claims that the registration process will promote consistent customer due diligence among all third-party processors, and serve as a tool to support NACHA's continuing efforts to maintain ACH Network quality.
Registration for each of your payroll customers includes:
- Your company name and contact information
- Name and principal business location of each "nested" third-party sender (i.e. all of your customers)
- Routing number: specifically, the third-party processor's routing number as included in the identification field used in ACH transactions originated for the third-party sender
- Company identification(s) of the third-party sender
This registration can be a pain, especially for those unaware that may need to do it and may have to do so last minute. Failure to do so could lead NACHA to fine your bank, and for your bank to fine you. You will also need to update this information on a regular basis with your bank.
How to Avoid NACHA Third-Party Registration
NACHA third-party registration may not have serious financial impact, but can have a major time impact that will take away from running your core business, not to mention the value of your time in order to work with the auditor and to address findings.
When you use an ACH direct deposit payroll provider like Cachet, we are considered the third-party processor because we process your ACH with a network of banks that we've been working with for years. This means that you are not considered the third-party processor and are shielded from needing to provide third-party registration information to a bank.
Cachet Financial Services & NACHA Third-Party Registration
The good news for those working with Cachet: we've already collected this information on behalf of our payroll service bureau and remarketer clients because California required that we do so back in 2013. Thus, we can register our clients' clients, and keep this information updated at no extra charge.