October 31, 2019 – Guy Page – On Friday, October 25, at 5:30 pm an East Montpelier woman employed by a local not-for-profit called the Vermont Daily Chronicle to report that she hadn’t received her usual Friday paycheck. She wasn’t panicked or upset. Her boss assured her the paycheck would hit her bank account on Monday (which it did).
Still, she wondered – as did thousands of other Vermonters employed at 200 companies experiencing the same problem – what the heck just happened? Could it happen again?
Most employees don’t sweat the details about how paycheck direct deposit works. They just want their money in the bank on payday. Direct deposit is like a car engine that only gets our attention when it doesn’t work. But like an engine, direct deposit has plenty of hidden, moving parts. Sometimes they stop working.
The first link in the chain of events happened in September, according to KrebsOnSecurity, when MyPayrollHR CEO Michael Mann was arrested after allegedly stealing $35 million of company money earmarked as payroll for his clients’ employees. As a result, MyPayrollHR couldn’t transfer that money to a bank called Cachet National, which handles the actual direct deposit into employees’ accounts. Caught unawares, Cachet National covered the added expense.
But Cachet National, ascribing to the maxim of “fool me once, shame on you; fool me twice, shame on me,” announced on Wednesday evening, October 23 a new, self-protecting protocol for receiving payroll funds from allegedly crooked providers like MyPayrollHR and honest ones like PayData of Colchester. As KrebsOnSecurity reported, gone was the convenient, trust-based system of ACH bank checks. Wire us the payroll money up front, Cachet told the payroll service providers.
That last-minute bombshell threw companies like PayData into action. While it scrambled to comply with Cachet’s new policy, it knew the typical Friday payday wouldn’t happen for clients who had providing payroll info on Tuesday (the day before the announcement) for Thursday night processing. It covered as many Friday paydays as possible with its own funds, “but we simply ran out of time,” the Paydata website reported Sunday, October 27:
PayData ACH- Direct Deposit processor Cachet Financial – Bancorp delayed the release of the direct deposit files dated for 10.24.19 settlement.
This was an isolated incident and impacted only PayData clients that had a payroll check date for Thursday, 10.24.19, and their employees that were paid by direct deposit.
All other clients’ payrolls, direct deposits were not impacted by this event. This did not impact any tax liabilities, tax payments or any employees that were paid by paper check.
Cachet Financial – Bancorp did release the 10.24.19 direct deposit files on Friday 10.25.19, but despite the assurance that these were to be dated for Friday, 10.25.19. PayData, late on Friday, received notification from local banks and credit unions that Cachet Financial – Bancorp had dated these files with a settlement date of Monday, 10.28.19. Very Disappointing…..
PayData did send wire transactions to some employees on Friday 10.25.19 to ensure that they would be paid by end of day Friday. PayData was successful in getting some paid, but not all; we simply ran out of time.
Like the East Montpelier woman, most Vermont employees knew they would be paid on the next business day. Even in a state where VPR reports that 40% of residents can’t cover a surprise expense, there have been no reports of hardship or panic. No doubt it helped that PayData worked hard to get employees paid promptly and transparently communicated the delay’s cause and solutions.
Could it happen again?
The answer seems to be ‘yes.’ But payroll providers will be better prepared. Even as they were expressing their unhappiness and wiring money to Cachet as requested, they were devising ‘work-arounds’ for if/when this happens again. As anyone who has wired money to a needy relative knows, it’s expensive. The Berlin Wal-Mart charges $4 to wire up to $50, much more than the pennies banks charge to process a check. Checks are also more convenient. But the time needed to “clear” affords opportunity to the unscrupulous. The same tradeoffs apply to the payroll industry.
Ultimately, banking is built on trust. As one expert noted on the Krebs website: “There’s a lot of same day stuff that goes on in the payroll industry that depends on people being honest and having money available at certain times. When that’s not possible because a bank in that process says it doesn’t want to be stuck in the middle that can create problems for a lot of people who are then stuck in the middle.”
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