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Paying the Employee. Payroll Source Review Course Fall 2013. Presented by: Carmela Miller, CPP Chapter 5 ------ Objectives. Pay Frequency Payment on Termination Payment Methods Cash or Check Direct Deposit Electronic Paycards Branded vs. Non-Branded.

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paying the employee

Paying the Employee

Payroll Source

Review Course Fall 2013

Presented by:

Carmela Miller, CPP

chapter 5 objectives
Chapter 5 ------ Objectives
  • Pay Frequency
  • Payment on Termination
  • Payment Methods
    • Cash or Check
    • Direct Deposit
    • Electronic Paycards
      • Branded vs. Non-Branded
objectives cont
Objectives cont.
  • Pay Statements
  • Unclaimed Paychecks (Escheatment)
  • Wages owed to deceased Employees
  • Extra Pay Periods (53rd pay period in a year)
certification is based on federal not state laws
Certification is based on Federal not State Laws

Content of Chapter 5 is a great resource for State Regulations on Employee Payment. Always check for Updates on States

  • State Reference Charts
  • State by State Pay Frequency
  • State by State Payment upon Termination (Another good source for this is the APA book on States)
  • State by State rules on Direct Deposit (this could always change)
  • Paycard State Compliance issues, Pay Stub Information
  • Escheatment
  • State by State wages to deceased employees
chapter 5 paying the employee
Chapter 5- Paying the Employee

Payroll Frequency & Payment on Termination

5 1 pay frequency
5.1 Pay Frequency
  • States Regulate how often employees must be paid.
  • Table 5.1 gives us a quick look at state rules
    • Another great source is the State Book by APA
5 2 termination pay
5.2 Termination Pay
  • Different rules for Voluntary & Involuntary
  • Many states require Immediate Pay for Involuntary Terminations
    • California-------- within 72 hours
    • Hawaii--------------Next working day
    • Massachusetts---Immediately
    • Michigan-----------Immediately
    • Minnesota –------Immediately or within 24hrs of demand
    • Nevada ------------Immediately
    • Oregon ------------By the end of the 1st Business Day after Discharge
    • Utah ---------------24 hours
    • Vermont ----------72 hours
    • West Virginia ----72 hours
payment methods direct deposit eft state controlled
Payment MethodsDirect Deposit (EFT) State Controlled
  • Safe and secure means of payment
  • Alleviates lost or stolen checks
  • Minimizes Unclaimed wages (Escheatment)
  • Storage of Documents
  • Employee time allotment for tendering payment
  • Prenote??
  • Regulated by Federal Reserve Board, Consumer Credit Protection Act and EFT Act
  • When initiating a International ACH Transaction (IAT) add coding to the transaction to identify it as an IAT.
  • Direct Deposit cannot be made mandatory as part of a hiring process –must provide choice of financial instituions and check as an option.
odfi rdfi nacha ach
  • ODFI –Originating Depository Financial Institution
    • This file contains , the employee wages, their account number and their financial institution.
  • ACH – Automated Clearing House
    • This is the process that receives the ODFI and coordinates the financial settlement between the participating financial institutions.
  • NACHA – National Automated Clearing House Association
    • This provides the rules that the ACH must follow
    • Office of Foreign Assets Control is an agency made it necessary for NACHA to adopt rules creating special requirements for IAT (International ACH Transactions)
  • RDFI - Receiving Depository Financial Institution
      • This is the employees bank, savings &loan or credit union

See Chart on page 5-10 Table 5.3

going green
Going Green??
  • Can direct deposit totally eliminate the paper and go Green?
    • Authorization agreements must be signed, Unless you have it set up for electronic authorizations
    • Authorizations must be retained for a certain pay period
    • Employees must still be provided a paper pay stub depending on state requirements
payment methods
Payment Methods
  • Cash
  • Check
  • Direct Deposit (EFT-Electronic Funds Transfer)
  • Paycards
cash or check
Cash or Check ???
  • Generally all 50 states allow payments by cash or check without additional law or regulations regarding this payment option.
    • Ease of tendering the negotiable payments by:
      • Financial Institutions must be convenient/or even located in state of company’s operations
      • No additional fees are imposed for tendering the payment option
    • Security
      • Signatures required
      • Internal Audit and need checks and balances

Be mindful of the impact that a voided or manual check issuance causes to other departments process

GL, Taxes, Benefits

direct deposit eft
Direct Deposit (EFT)


  • Immediate availability of funds on Payday
  • No Bank Interaction
  • No Delay in constructive receipt of pay
  • No Lost/Stolen Checks
  • Reduction of Paper Flow
  • Cost Effective
  • Ease of Reconciliation
  • Reduction of Escheatment
direct deposit
Direct Deposit


  • No Bank Account
  • Comfort Level in Payment
  • Incorrect Pay
  • Employee changes accounts without telling Payroll
  • Not truly “Green”
  • Loss of Float
  • Additional Processing Fees
  • Challenges for stopping payment/reversals
direct deposits
Direct Deposits

Late Direct Deposits:

  • Troubleshooting Funds must be posted by 9:00 am on pay date
  • Verify Routing and Account Numbers Prenote?
  • RDFI posting schedule
  • Federal Holiday Impact on processing

Additional resources can be found in communications with the ODFI for internal challenges.

Regardless of delay – funds should be honored without penalty to employee. Based on voucher verification.

Employers must keep the authorization agreement for at least

2 yrs after revocation,

full payroll reversals vs single entry reversals
Full Payroll Reversals vs.Single entry reversals

Regardless these requirements are mandatory

  • Amount of reversal must match the amount of the credit
  • Must be reversed within 5 days of settlement date
  • No employee authorization is necessary
  • Paycards are similar to debit cards
  • Prefunded, host based cards providing employees access to their net pay via bank, ATM (Automatic Teller Machine) or POS( Point of Sale) purchase.
  • Paycards are similar to direct deposit
  • Funding process for the employer is same as for direct deposit
  • Process subject to the same NACHA regulations.
paycards cont
Paycards cont.
  • New way to pay employees
  • Many variable options in the plans
  • Many competitors trying for business – ensure reputability
  • Verify with legal for implications from plan
  • Cardholder security
  • Employee age (18 yrs)and turnover consideration
  • Understand the difference between branded vs. non-branded
paycards branded vs non branded
PaycardsBranded vs. Non-Branded


  • Visa MC Discover
  • Employee Signature only, easily used if stolen
  • ATM – PIN
  • Personalized
  • Parental Approval < 18 yrs old
paycards branded vs non branded1
PaycardsBranded vs. Non-Branded


  • Network Logo
  • PIN required for ALL transactions, Stolen card only needs pin to purchase
  • Most reliable – Safer
  • Host computer authorizes funds are there
paycards employee employer benefits
PaycardsEmployee & Employer Benefits


  • Reduced costs
  • Increased independence
  • Improved credit status (not true with all cards)
  • Financial Safety
  • Ease of use
  • Replenishment if lost
  • No time or geographical limitations
paycards employee employer benefits1
PaycardsEmployee & Employer Benefits


  • Reduced Costs
  • Enhanced efficiency
  • All employees eligible
  • Increases employee productivity time
  • Escheatment reduction
paycard implementation
Paycard Implementation
  • Financial Institution agreement and offering
  • Anticipation program for employees
  • Establish a funding pool with a bank
  • Institution establishes employee account cards, names
  • Funding by wire or ACH
  • Adjustments are done via web application


  • Based on card policy-talking points when researching vendor
  • Bank notification for reversal and refunding
  • Blank checks available for employees to use
  • Check to see if they do credit checks on employees

Escheatment is the unclaimed wages process governed by State Laws

  • State regulated
  • Length of time payment held (generally 1 yr)
    • New York/Oregon – 3 yrs
    • North Dakota/Pennsylvania – 2 yrs.
  • Notification process
  • Wage turnover process

Best practice is to utilize direct deposit and paycards as wage payment methods.

wages owed to deceased employees
Wages Owed to Deceased Employees

Payments, Payee and Taxation are based on when the employee passes.

  • Federal Regulates Taxation
  • State Laws Regulates the payee and payment amount in accordance with the current situation.

Illinois: Maximum Payable: All unpaid wages

To Whom: Person owed for funeral

expenses, spouse or child.

Allowed Conditions to Pay: Small estate affidavit: estate not over $15,000

extra pay days
Extra Pay Days

Each year we have extra pay days caused by the calendar.

  • Years affected with the 53rd pay period.

2012, 2013, 2014,2015, 2016

  • Payroll must anticipate and plan for proper processing and compliance.
    • Holidays
    • Weekend pay date
  • Salaried employees can be adjusted. Most employers don’t bother
  • Hourly employees must be paid all wages. No different

Best practice is to maintain pay structure and schedule without deviation…Keep good relations with employees.

Verify contracts if applicable.

review questions
Review Questions
  • What laws govern how often employers must pay employees?
  • Who governs the treatment of Escheat laws?

3. What is a branded pay card?

review cont
Review Cont.

True or False

  • The Fair Labor Standards Act regulates how often employees must be paid by their employer or how soon they must be paid after performing services.
  • Direct Deposit is one area where the federal and state governments share regulatory responsibility.
  • All States regulate the payment of wages owed to deceased employees.
  • A bi-weekly salary is paid twice a month, usually the 15th and last day of the month.
  • If 250 employees consent to direct deposit, then all employees must comply.
review cont1
Review Cont.

Multiple Choices:

  • The employer prepares a automated file of direct deposit records that indicates where its employee’s pay is to be deposited. What is the name of the financial institution where this file is then sent?
  • Automated Clearing House
  • Originating Depository Financial Institution
  • Receiving Depository Financial Institution
review cont2
Review Cont.

2. How many years must an employee keep the authorization agreement for direct deposit after revocation by the employee?

  • At least two years
  • At least one year
  • There is no retention requirement
  • At least three years
review cont3
Review Cont.

3. What are “escheat” laws?

  • Federal laws governing the treatment of unclaimed wages as abandoned property.
  • State laws governing the treatment of unclaimed wages as abandoned property.
  • State laws protecting employees from their employer
  • State laws outlining the frequency with which employees are paid.
review cont4
Review Cont.

4. Once an employee has given authorization for EFT and the employer creates electronic pay transactions for deposit, where does the employer send them?

  • ACH
  • RDFI
  • ODFI
review cont5
Review Cont.
  • Under the EFT system, what participating party receives the individual transactions and posts them to the customers’/employees’ accounts?
  • ODFI
  • ACH
  • RDFI
review cont6
Review Cont.

6. Which of the following laws and regulations does not regulate EFT?

  • Federal Reserve Board Regulation E
  • Title IX of the Consumer Credit Protection Act
  • Fair Labor Standards Act
  • Electronic Fund Transfer Act
review cont7
Review Cont.

7. Which of the following agencies made it necessary for NACHA to adopt rules creating special requirements for International ACH Transactions?

  • Internal Revenue Service
  • Federal Reserve Board
  • Department of State
  • Office of Foreign Assets Control
review cont8
Review Cont.
  • Which of the following participants in the direct deposit process distributes EFT payments to the receiving financial institutions?
  • ODFI
  • ACH
  • RDFI
  • FRB
review cont9
Review Cont.

9. Which of the following is not an employee benefit of using paycards to pay employee wages?

  • Eliminating check cashing fees
  • Increased risk of paycheck theft
  • Protection from loss because paycard can be replaced
  • No time or geographic limitations on funds access
review cont10
Review Cont.
  • If an employer uses prenotificationto test the employee’s banking information before initiating direct deposit, how long before any actual pay is sent through the ACH network must be prenotification be sent?
  • 6 Banking Days
  • 2 weeks
  • 3 Banking Days
  • 6 Calendar Days
paying the employees
Paying the Employees



Read the chapter, do the quizzes, know the difference between ACH, ODFI, RDFI, NACHA and IAT

Read Questions twice, know what they are asking!