Did you know that some banks will now let you access your pay early? Are you one of the 80 million Americans who have too much month at the end of your paycheck? Wouldn’t you rather get paid on Wednesday - two days earlier? If you are paid by direct deposit, then arranging to have it done may not be difficult.
However, you won't be able to make this happen on your own. Your company will have to make arrangements with its payroll processor and with its bank.
Understanding the process for establishing early direct deposit of pay
Both the sending and receiving bank have to agree to work together to make it happen. If either bank refuses, then a worker cannot use this benefit. More often than not, resistance may come from the worker's bank.
However, some banks see early direct deposit as a great tool to attract and keep customers. They wisely realize that many people struggle by the end of the pay period. These banks offer accounts - which most often are prepaid debit cards - that help people when they need to pay their bills quickly. They know that getting paid early is not something that helps people go on a mid-week shopping spree. It helps workers to pay their bills. The money hits - and then it goes out to the utility company, to the landlord, and to the cell phone carrier. What's left covers the groceries.
How does the process work? I will explain it with an example, using a scenario where a worker receives his pay on
a) The employee clocks out on Friday. He reports his hours.
b) On the next workday, the department manager prepares a labor expense report. The manager sends it over to the payroll department for payment.
c) The payroll department tells the bank to pay the sum of the wages due. Because it usually takes two days for the bank to process the payment, the employer’s payroll company sends in the request by Wednesday.
d) Once it gets the request, the employer’s bank messages the employee’s bank. The bank confirms that it will make the payment transfer now (Wednesday) and that the employee’s bank will have the ability to spend those funds on Friday.
e) The employee’s bank, acting on its expectation that the payment will not be reversed, puts money into the worker’s account on Wednesday, as soon as the future payment is confirmed.
f) The worker sees that his paycheck has “hit” his account. The funds are accessible immediately.
g) On Friday, the employee’s bank receives the payment from the employer’s bank. The payment has taken two days to travel through the payment network.
As you can see, for this process to work, the employee’s bank has to trust that the payment will go through successfully. Is something goes wrong with the payment – if it is for too much or too little - then the employee’s bank has a problem on its hands.
But the employee’s bank tends to have trust because it knows that payroll companies almost never make this kind of mistake. I recently spoke with a banker who said that in ten years of working with early direct deposit, there was only one instance when a payment had to be reversed. In that case, the payroll company accidentally gave all of the company’s paychecks to one worker. Imagine the surprise when that particular staff person checked his account balance!
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