To understand Same-Day ACH we first have to understand what ACH is. ACH stands for Automated Clearing House and represents the network that connects all the banks, credit unions and financial institutions in the U.S. The ACH network allows you to send and receive payments via account and routing numbers.
These kind of transfers typically take 2-4 days to process. This is due to the 40-year-old system that’s in place. Another reason it’s so slow is that submissions must be made before a daily deadline or else they won’t go through on time.
What is same-day ACH?
Historically, there has only been one settlement in a 24 hour period. Meaning a transfer submitted today wouldn't be received until tomorrow. The goal of Same-Day ACH was to both originate and receive transfers in the same 24 hour window. To accomplish this, the ACH network is adding a second settlement with the goal of adding a third by March of 2018. By adding more settlements, NACHA is giving financial institutions the ability to execute transfers same-day.
Same-Day ACH is a three step process implemented by NACHA, who essentially run the ACH network. The money still moves the same exact way with this new rule, but the money moves faster.
Step One: Will be implemented on September 23rd 2016 and will allow same-day ACH credit transactions to be processed.
Step Two: Will be implemented on September 15, 2017 and will allow same-day credit and debit transactions to be enabled.
Step Three: Will be implemented on March 16, 2018 and will mandate that all same-day credit transactions be made available for withdrawal by the end of the business day local time. It will also add an additional settlement window.
Though step one is right around the corner it does not mean that banks have to provide same-day credit transactions. They just have to accept them. Most of these same-day transfers will end up costing more than traditional ACH transfers.
What does this mean for most of us?
For most of us we’ll only notice minor differences to our accounts. Depending on the bank your employer uses you might get paid sooner if you’re using direct deposit or a SOLE Paycard, but this is still a big maybe since banks don’t have to provide same-day ACH transfers. This also means that government benefits, tax returns, and other refunds could be paid out sooner through direct deposit.
It would also allow you to send payments to (for example) your landlord or utility companies on the due date and still be able to make on-time payments. As well as providing faster crediting for late payments.
What does this mean for payroll professionals?
Same-day ACH will make the biggest impact with payroll professionals. It will allow payroll professionals to make last-minute changes to payroll submissions. The rule will also open two different clearing windows giving payroll processors the option to make submissions to meet different settlement times. This will help payroll processors meet tight deadlines in a more streamlined process. It also means more control and flexibility when it comes to payroll while reducing risk and payroll processing mistakes.
What this means for employers?
A faster ACH process will help employers meet payroll deadlines, help hourly employees get paid faster and pay invoices faster. It will also help businesses send and receive payments more quickly.
These new rules will also benefit terminated employees. Depending on which state the business is located in, terminated employees must be paid in full what’s owed to them on the date of termination. Same-day ACH can allow accounting departments to pay the terminated employee through ACH (direct deposit) instead of having to print out a physical check.
It's worth noting
It may be worth noting that Same-Day ACH could, in theory, result in later payments for employees. With the old system, payroll managers were required to submit payroll a day in advance for the funds to be received on payday. With the advent of Same-Day ACH, payroll submitted using the same-day option may not be received until a later settlement time.