Table Of ContentTable of Contents
1. INTRODUCTION.............................................................................. 1
2. HISTORY OF THE AUTOMATED CLEARING HOUSE.......................2
3. UNDERSTANDING DIRECT DEPOSIT..............................................3
A. How Does Direct Deposit Work?............................................3
B. Company Benefits of Direct Deposit of Payroll........................4
C. Company Questions and Answers.........................................5
4. UNDERSTANDING ROUTING AND TRANSIT NUMBERS.................8
5. EMPLOYEE QUESTIONS AND ANSWERS.....................................10
6. PROMOTIONAL INFORMATION.....................................................12
A. Employee Advantages.........................................................12
B. Sample of Employee Letter..................................................13
C. Sample of Bulletin Board Announcement.............................14
D. Pay Check Stuffer................................................................15
7. LIST OF EXHIBITS..........................................................................16
A. Authorization Agreement......................................................17
B. ACH File Specifications........................................................18
C. Sample ACH Reports...........................................................27
D. ACH Transmissions .............................................................32
E. ACH Codes.........................................................................37
F. Processing Schedule: Pay Date & Holiday Schedule............38
G. Direct deposit Cost Benefit Analysis Worksheet ...................41
H. ACH Contact List.................................................................42
I. Directory of KeyBank Routing and Transit Numbers..............43
Please Note: The information in this tool kit, while correct at the time of its publication, is subject to
change without prior notification.
ACH Direct Deposit User Guide | i
1. INTRODUCTION
This tool kit is designed to help you obtain greater cost savings and other benefits through employee
participation in your direct deposit program.
Inside you will find:
a) Information about the Automated Clearing House (ACH)
b) How direct deposit works
c) Answers to commonly asked questions about direct deposit
d) Promotional ideas for increasing participation
We hope that this information will help in planning your employee communications, and in promoting
increased use of direct deposit.
We are pleased to have the opportunity to serve you. Please let us know if we can assist you further in
developing your direct deposit program.
- KeyBank Global Treasury Management & Corporate Product Management
ACH Direct Deposit User Guide | 1
HISTORY OF THE AUTOMATED CLEARING HOUSE
The Automated Clearing House (ACH) began in the late 1960’s when a group of California bankers formed
the Special Committee on Paperless Entries (SCOPE). This committee was formed in direct response to the
rapidly growing volume of paper checks being processed through the national check clearing system. The
committee was chartered to explore the technical, operational and legal framework necessary for an
automated payment exchange system.
SCOPE laid the groundwork for the first Automated Clearing House association which began in 1972. This
led to the formation of similar groups in other parts of the country. In California, as in most other areas,
agreements were made between the emerging local ACH associations and the Federal Reserve Banks
serving those areas, to provide the facilities, equipment, and staff to operate the local ACH.
In 1974, the National Automated Clearing House Association (NACHA) was formed to coordinate the
activities of the local ACH associations and to establish a national system for exchanging entries among the
different ACH regions. Through the joint efforts of NACHA and the Federal Reserve System, the local ACHs
were linked electronically on a nationwide basis by 1978.
Today there are ACH associations serving over 20,000 financial institutions across the United States. These
financial institutions provide ACH-based services to 300,000 corporations/organizations and millions of their
clients.
KeyBank and its affiliates originate approximately 245,000,000 ACH items annually.
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UNDERSTANDING DIRECT DEPOSIT
A. How Does Direct Deposit Work?
At KeyBank, ACH processing is done through a state of the art software package, known as PEP+.
This software helps us ensure that your transactions are delivered to the Automated Clearing House
for distribution on time and that all files are accurate.
Here’s how the process works:
1. Your employees who participate in the program sign authorization forms, which allow you to
deposit their earnings directly into their accounts at the financial institution of their choice.
2. Based on the authorization forms, your company prepares a transmission in the standard
NACHA format. A record is created for each participant that includes the net deposit, bank
account number and financial institution Routing and Transit number. If an employee changes
banks or account numbers, the employee must notify you so that the appropriate records can
be changed to ensure their direct deposit is sent to the correct account.
3. While prenotification is optional, the first transactions you create may be prenotes for all
employees who have signed up for direct deposit. A prenote is a zero dollar entry that must be
sent through the ACH system at least ten (10) calendar days prior to the first actual payroll entry.
The prenote is used to let the employee’s bank, savings & loan or credit union know that an
actual credit to the employee’s account is forthcoming. The receiving financial institution verifies
the employee’s account number and related information. If any information included in the
direct deposit entry is incorrect, the receiving financial institution has ten (10) calendar days to
notify KeyBank of the error. This is known as a Notification of Change. KeyBank delivers
various hard copy reports, which notify your company of the necessary changes. Whenever
you add a new employee to the direct deposit program, it is recommended that a
prenote entry be generated.
4. You continue to furnish the statement of earnings to your employee on payday.
5. The transmission is normally delivered or sent to KeyBank by 10:00 A.M. two business days
prior to the effective pay date. This time may be extended to 3:00 P.M., but in the event of a
problem with the file, there may not be sufficient time to remake it for processing that day.
(Transmission times may vary.) Our preferred method of receiving files is via transmission.
6. KeyBank will process the file, balance the entries, and retain those deposits which belong to
KeyBank accounts.
7. The file is then forwarded to the Automated Clearing House facility at the Federal Reserve Bank.
The Automated Clearing House balances and validates the remaining transactions. The items
are then sorted and distributed to the designated financial institution.
8. The funds are normally available to your participating employees on the morning of payday.
Deposits are reflected in the employee’s next bank statement.
KeyBank stands ready to provide operational, technical, educational, and marketing assistance to
ensure your Direct Deposit Program is a success.
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B. Company Benefits of Direct Deposit of Payroll
• Advanced knowledge of cash flow. Electronic funds transfers are predictable and clear in less
time than checks, which can improve the company’s control of its cash flow.
• Direct Deposit can be offered as an employee benefit and may strengthen employee relations.
KeyBank offers a comprehensive Group Banking Program, which provides individual benefits to
those employees who bank at KeyBank and receive direct deposit. Most of the benefits are
provided at no cost to your company. We would also encourage you to explore Group Banking
plans with the other major financial institutions in your marketplace. A summary of KeyBank’s
Group Banking benefits has been enclosed.
• Improved employee productivity - reduces employee time spent cashing checks on payday.
• Improved company image - as a modern, innovative company.
• Cost savings. Based on nationwide surveys, each paycheck that is converted to an electronic
deposit saves $.10 - $.23 on paycheck issuance and reconcilement costs.
• Administrative efficiencies:
− Reduced item to print and write checks (process payroll).
− Eliminated or reduced reconcilement costs.
− No lost or stolen checks, or resultant stop payments and reissues.
− No confusing or special handling of checks for absent employees.
− Lower per item costs for printing and handling payroll information notices.
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C. Company Questions and Answers
Q. Not all my employees bank with the same financial institution. Can they receive
direct deposit of their pay?
Yes, the originating financial institution, KeyBank, is your connection with the ACH system, which
automatically distributes your employees’ pay to any ACH member bank, savings and loan or credit
union designated by your employees. Your employees are free to bank where it is most convenient
for them.
Q. I have employees all over the country. How do I know this system will work the same
way everywhere?
The ACH payment mechanism is a nationwide electronic payment system where all participating
financial institutions follow the NACHA operating rules and regulations.
Q. What has been the employee reaction to this program?
Employees, clients, organizations and corporations report strong favorable reactions.
Q. How will my employees get their money?
Employees can obtain their money by cashing a personal check, using an automated teller machine,
or drawing from their deposit accounts. The cash they need will be there waiting for them when
they need it. They won’t have to pick up their paycheck, stand in line, and deposit it themselves.
They will still receive a pay stub which will verify deposit of their funds.
Q. What if some of our company’s employees want to send part of their pay to a
checking account and the other part of their savings account?
This is a “split deposit.” The ACH system can handle split deposits even if the accounts are at
different financial institutions.
Q. Do all my employees have to agree to use direct deposit?
No. But the more who use it, the greater the savings to you. That’s really a matter to be worked
out between you and your employees. Many companies strongly encourage new employees to
receive direct deposit by treating a check as an exception. Each state has different rules regarding
whether direct deposit can be mandatory.
Q. What if some of my employees don’t have checking accounts?
They will need to open a checking or savings account in order to receive their direct deposit
transaction. It is to your advantage to encourage them to open one. The more your employees
participate in the program, the greater savings to you.
Direct Deposit User Guide | 5
Q. What kind of employee participation can I expect?
The participation depends on the type of services offered, the geographical area involved and how
much you promote it, by word of mouth, pay envelope stuffer, etc. We can assist you in developing
your promotional strategy.
Q. How will ACH deposit be indicated on our employees’ bank statements?
The NACHA rules require that, at a minimum, the date and the amount of the transaction, as well as
the source and purpose must be made available to them.
Q. Will errors be difficult to trace and correct?
The opposite is actually the case. By automating the payments system, errors are minimized.
KeyBank’s Cash Management and ACH staff are available to help in any way necessary.
Q. Won’t I lose float?
You will have to determine the amount of float that might be lost based on your own situation.
Banking studies indicate that float has decreased substantially as a result of efforts to improve the
efficiency of the nation’s check collection system. Many companies have discovered that the loss of
float is offset by savings on check processing charges, in-house reconcilement costs, check
safekeeping, stop payment charges, and check re-issue charges.
Q. Will it be expensive to convert our present program to supply the necessary input?
By involving your data processing people, a precise cost and timetable can be established. Many
payroll software packages already have a direct deposit option built in. Once an ACH system is in
place, the savings start adding up because the ACH system is less expensive to operate. And the
more the system is utilized, the greater the savings.
Q. If I use direct deposit, I’ll still have to run two systems.
It’s really one system. You’ll find that the automated portion is derived from your present method
and will be less expensive. The more you convert to the automated mechanism, the more you’ll
decrease your present costs.
Q. I don’t have an automated payroll system now.
That’s okay. We’ll show you how to set up the automation needed.
Q. It sounds complicated.
It really isn’t. The only complicated part is the operational portion within the ACH system and we do
that for you. Once the system is in place, your company’s job is actually simplified.
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Q. I can’t meet your input schedules. What are my options?
There are two options that are recommended. You could either advance your processing cycle by
one day or adjust your payday. Many companies have found that these adjustments, when
necessary, are readily accepted - and the benefits received more that compensate for the
adjustment.
Q. Does this make payroll information accessible to people who don’t need to have it?
Exactly the opposite. Direct deposit is much more secure. Under normal procedures, a check
passes through as many as 10-12 hand in the clearing process... including grocery store clerks,
tellers, etc. With direct deposit, this is handled on magnetic tape, transmission or PC based
software and no one sees the individual transactions.
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Description:Table of Contents 1. INTRODUCTION.. 1 2. HISTORY OF THE AUTOMATED CLEARING HOUSE
