The holiday season is around the corner, which for some means eggnog and lights on display, but for others it means payroll delays.
Automated payment through direct deposit is proven to be more efficient, secure and cost-effective than paper checks. Still, there are a few considerations to keep in mind when switching over to electronic payment — especially around the holidays.
The holiday season is a double-edged sword: it’s likely the most expensive time of the year, but is also full of banking holidays which can affect the timeliness of direct deposit. Here’s why.
What is the ACH and why does it matter?
The Automated Clearing House is an electronic network that handles direct deposits, which operates Monday – Friday. The ACH does not operate when there is a bank holiday. So, if you pay employees via direct deposit, the funds will not be transferred into their accounts on a bank holiday.
Bank holidays are established by the Federal Reserve Bank Services, and consists of 10 dates. For 2017 the dates are as follows:
- New Year’s Day — January 1
- Martin Luther King Jr.’s Birthday — January 16
- George Washington’s Birthday — February 20
- Memorial Day — May 29
- Independence Day — July 4
- Labor Day — September 4
- Columbus Day — October 9
- Veteran’s Day — November 11
- Thanksgiving Day — November 23
- Christmas Day — December 25
For holidays falling on Saturday, Federal Reserve Banks will be open the preceding Friday. For holidays that fall on Sunday, all Federal Reserve Banks will be closed the following Monday. This can postpone direct deposit if payday happens to land on one of the days Federal Reserve Banks don’t operate.
What does all of this amount to? Well, as we are coming up on one of the most expensive times of the year, we are also up against the busiest season for banking holidays. It’s always important to run a timely payroll to maintain pay period consistency, but this is especially the case in light of the holiday season. So, what happens if payday falls on a bank holiday?
What happens with direct deposit on banking holidays?
A study from the National Automated Clearing House Association found that 82 percent of employees use direct deposit, which is a major percentage of the working population that could be affected by a delay in payment. This is especially true in the case of a three day weekend — which is the case for Christmas 2017.
Since the ACH does not operate on banking holidays direct deposit cannot be processed, but employers have choices on how to contend with the delay:
- Run payroll as usual — You can choose to do nothing. The ACH will process direct deposit the next business day after the holiday. This is the easiest option, but might also cause the most employee unrest. To avoid a lapse in employee payment, many employers choose to do payroll early.
- Run payroll early — You can choose to pay before the holiday. In this case, you will need to run payroll one business day earlier, and employees will need to submit timesheets early. Logistically this can cause some issues because it would be a break from standard procedure for you and your employees. For this reason, many employers turn to the third option.
- Speeding up the process — Depending on your direct deposit system, you might be able to expedite the process. You can decrease the numbers of days it takes to process direct deposit in order to get it through before the holiday, but this will come at an additional cost.
Whichever option you choose, the best thing you can do to mitigate payday confusion is communicate. As banking holidays approach, inform your employees of any expected delays. As long as you remain consistent throughout the year, employees can learn to expect, and plan for, payday hiccups caused by banking holidays.
Contact rapid! PayCard to learn more about direct deposit and how SimplyPaid — an electronic corporate disbursement system — can save you time and money on payday.