DIRECT DEPOSIT OF PAYROLL

In order to improve customer service and reduce the customer and banking costs inherent in paper transaction processing, the banking industry has developed an electronic means of transferring funds, the central component of which is the Automated Clearing House (ACH). The ACH is a computer facility, usually operated by a Federal Reserve Bank, which facilitates the paperless exchange of financial transactions between participating financial institutions. These ACHs interconnect, making possible the national interchange of electronic transactions.

Every participating ACH financial institution is assigned a unique number that can be found on the bottom left of a personal check or deposit slip (for checking or savings accounts). This number is the Transit-Routing (TR) number, which identifies the bank where that account is maintained. Direct Deposit is the automatic credit of a recurring payment (such as net pay) into an individual's account at a participating financial institution. Instead of distributing checks, the disbursing organization sends a magnetic tape (or in some cases, a diskette) or transmits payment data via modem to the bank, where the transactions are electronically processed and forwarded to the ACHs for distribution to the receiving depository institutions. Some of the advantages of using Direct Deposit are:

• No trips to the bank or waiting in lines;

• No lost or stolen checks;

• Deposits are made even if the employee is sick or away; and

• Savings in postage and time.

Direct Deposit cannot, nor was it intended to, debit an individual's bank account. In other words, no negative net amounts can be processed through Direct Deposit (net amounts being the total of all regular, bonus, and adjusting payroll edit records' net pay for an individual).

This topic includes general requirements for using Direct Deposit, a step-by-step procedure for initializing and using Direct Deposit, and the record layouts of the bank transmission file.

Data Transmission

To improve the speed associated with submitting payroll data, a method of communicating at high speed via computers using ordinary telephone lines, called data transmission, is available at most participating banks. Some of the advantages of data transmission are:

• Elimination of courier delays and expense in tape/diskette delivery;

• Savings in clerical expense;

• More timely availability of data; and

• Improved internal control.

Requirements

There are several requirements you must meet in order to use the Direct Deposit feature:

1. Your bank must participate in the ACH system. We recommend that you establish contact with your bank 90 days before you plan to implement Direct Deposit in order to complete the necessary arrangements, such as the required legal paperwork.

2. For data transmission by telephone line, a modem, communications software, and telephone line that can receive and initiate calls may be required. Data transmission is discussed in more detail later in this topic.

3. The bank requires two days lead time to process the Direct Deposits. A payroll that normally is distributed on Friday, for example, must be received by the bank on Wednesday morning. This means that timesheets must be processed by this time, which may be difficult for some users to do, especially if they are sending a diskette to the bank rather than using data transmission, or if there is a short lag time between the pay period ending date and the paycheck date.

Summary of Required Steps

The following steps are broken into two main groups: initialization and periodic procedures. Initialization steps are normally done once, and then performed as needed, whereas periodic procedures take place each time payroll data is sent to the bank.

Initialization Steps:

1. Contact your bank. If you are not already using direct deposit with another software package, you must perform prenotification steps or other procedures to set up your employees in their direct deposit program. If you are already using direct deposit with another software package, you still may need to perform prenotification steps or other procedures to test the Costpoint Direct Deposit transmission file.

2. Enter the IDs (ACH transit-routing numbers) and names of all banks at which participating employees maintain their accounts on the Configure Bank Routings screen. You must also enter your company's bank here.

3. Enter the bank IDs and account numbers of all participating employees and the initial prenotification ACH Trans Code (Checking Prenote for checking and Savings Prenote for savings) on to the Pending Bank Accounts subtask of the Manage Employee Bank Information screen.

4. Initialize the Configure Direct Deposits screen. Please call Costpoint General Support for assistance. Have your bank name and ABA number available at that time.

5. Select the forms you use in the Advice Format drop-down list on the Posting/Advice Information tab of the Configure Direct Deposits screen.

Periodic Procedures:

1. Enter timesheets and Post Timesheets, Compute Leave Accruals, and Post Payroll Journal and Compute Payroll.

2. Run the Activate Pending Employee Bank Information utility, which deletes the employee’s active bank accounts and replaces them with the pending bank account setup if the employee’s Direct Deposit File Created check box is selected in the Pending Bank Accounts group box on the Manage Employee Bank Information screen. This utility loads the Active Bank Accounts table (Manage Employee Bank Information) with the bank accounts that are used to allocate an employee’s net pay. You may prefer to execute this step as the final step of the pay period, or as the first step of the next pay period.

If this is the first time you are performing the director deposit procedures, skip this step.

3. Process the direct deposit on the Create ACH Bank File screen. This creates the file, with a user-defined path and name, that is transmitted to the bank. We recommend that you name each file differently so that you can retransmit if necessary. You must perform this step before printing payment advice forms for direct deposit employees and before posting the Payroll Journal. The process, which generates the Direct Deposit File, accepts only Payroll Table records that do not have check numbers or check dates in them. You can print regular payroll checks before generating the Transmission File because the Print Paychecks program does not place check numbers or check dates on employees who are in the Manage Employee Bank Information records.

4. Print and review the contents of the ACH File on the Print Bank ACH File Report screen.

5. Transmit the bank file to the bank using a modem, or send a diskette (or tape) containing this file to your bank with any necessary forms.

6. Print the payment advice forms on the Print Payment Advices screen, using the form your company has chosen.

Data Transmission

In order to implement data transmission, you must have a modem, communications software, and a phone line through which outgoing calls can be made. The transmission of data is a separate process from Costpoint Payroll. In other words, after Costpoint has written the Transmission File, usually to a disk using the user-defined path, the Costpoint job ends. Use the communications software to transmit the data after you log out of Costpoint.

Your bank can provide technical information outlining the communication protocol requirements. Check with the cash management representative at your bank to see if they support data transmission.

Most banks that receive data transmissions have a dial-up feature that allows you to initiate the transmission by calling the bank's host computer within a certain time period on the day of the transmission. The host computer answers and waits for the transmission to begin, or, in some cases, hangs up and returns the call automatically to your modem. This procedure verifies the source of the transmission. In other cases, voice contact is made with the modem operator at the host who then switches the modem into data mode. You then initiate the transmission using the communications software send function. Another method involves the use of a third-party intermediate that receives and converts asynchronous transmissions to tape, which they send to the bank.

The receiving bank may require the file to be named per their specifications.

Special Hints

Pay Frequency — The Transmission File contains pay data from the Payroll Table file for only one pay frequency. The employee's pay frequency at the time payroll is created determines in which Payroll Table file the record is stored. Therefore, be aware that if an employee's frequency code is changed on the Manage Employee Taxes screen after payroll is created, the employee's potential paycheck record is not moved to the new pay frequency file.

One Cent Credits — Some banks require a one-cent credit to be transmitted as part of initializing each employee in the Direct Deposit program. Do this by entering an "X" record on the Manage Payroll Records screen after posting all the regular payroll. Set up a deduction on the Manage Deductions screen and a G/L account specifically for this purpose. On the Manage Payroll Records screen, enter a negative one-cent amount into this deduction field; a net pay of one cent is generated. In the next pay period, enter a positive one cent into the same deduction so that they will "wash" when you post the second payroll.

Following is a general description of the ACH file structure/record formats for facilitating the direct deposit of payroll.

Entry Detail Record Format

Entry Detail Records contain information that connects the entry to the individual; for example, bank account number, identification number, name, and the amount of the deposit. The contents of the Company/Batch Header Record are combined with Entry Detail Record to fully describe each entry and all participants to the transaction.

Company/Batch Header Record Format

The Company/Batch Header Record identifies the originating company and briefly describes the prearranged credit; for example, REG SALARY indicates the reason for the transactions originated by your organization. In addition, this record can indicate the intended effective date of all transactions within the batch.

The Company/Batch Header Record also contains the transit-routing number (that is, a nine-digit number, including check digit) that uniquely identifies each depository financial institution. The information contained in this record applies uniformly to all subsequent Entry Detail Records in the batch.

File Header Record Format

The File Header Record designates physical file characteristics and identifies the immediate destination (for example, bank name) of the entries contained within the file or within the transmitted batched data. In addition, this record includes date, time, and file identification fields that can be uniquely used to identify the file.

Company/Batch Control Record Format

The Company/Batch Control Record contains the counts, sub- (or "hash") totals, and total dollar amounts for the preceding Detail Entries within the batch.

File Control Record Format

The File Control Record contains dollar, entry, and sub- (or "hash") total accumulations from the Company/Batch Control Records in the file. This record also contains counts of the number of blocks and the number of batches within the file or batched data being transmitted.