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Processing Direct Deposits

> Looking for the complete guide? See Direct Deposit - Complete Guide for end-to-end instructions.

Overview

Direct deposits automate fund transfers from employer bank accounts to employee bank accounts, eliminating the need for paper paychecks. ProPay creates NACHA-compatible files that you transmit to your ACH processor or financial institution.

Before You Begin

Ensure direct deposits are set up correctly:

  • Employer setup - Direct deposits enabled in Employer Setup > Screen 4
  • Employee setup - Bank information entered for each employee receiving direct deposit
  • ACH processor agreement - Active agreement with your financial institution or ACH processor

See "Setting Up Direct Deposits" for complete setup instructions.

Accessing Direct Deposits

  1. Go to Client Functions > Electronic Processing > Employee Direct Deposits
  2. The Direct Deposits screen displays all direct deposit transactions ready to be transmitted

This list is created automatically when you print paychecks for employees set up for direct deposit.

Verifying Direct Deposit Transactions

Review the transaction list

The Direct Deposits screen shows:

  • Employee name - Each employee receiving direct deposit
  • Account information - Bank routing number and account number (partial)
  • Credit amount - Amount being deposited to employee's account
  • Debit amount - Amount being withdrawn from employer's account
  • Net pay - Employee's net pay amount
  • Settlement date - Date funds will be transferred

Check debits and credits balance

Critical verification: Total debits must equal total credits.

  • Credits - Deposits into employees' bank accounts (total of all employee deposits)
  • Debits - Charges to employers' bank accounts (total of all employer account withdrawals)
  • Difference - Should always equal zero

If debits and credits don't balance:

  1. Stop - do not export the file
  2. See "Troubleshooting: Direct deposits do not balance" for correction steps
  3. Do not proceed until the file balances

Verify settlement date

The settlement date is the day bank accounts will be debited or credited.

Typical timing:

  • Submit file 1-2 banking days before the pay date
  • Settlement date = pay date
  • Allows time for ACH processing

To change the settlement date:

  1. Verify the change is necessary
  2. Consult your ACH processor about acceptable timing
  3. Update the settlement date field
  4. Ensure it still meets your employees' pay date requirements

Editing Direct Deposit Transactions

When to edit

Edit transactions only when:

  • Bank information is incorrect for an employee
  • An amount is wrong due to a paycheck error
  • Settlement date needs adjustment

Important: On a normal day, there should be no changes needed. Entries are created automatically during check printing with correct information from employee setup.

How to edit a transaction

  1. Click the employee's transaction to select it
  2. Click the Edit button
  3. Make the necessary changes:
    • Bank routing number
    • Account number
    • Deposit amount
    • Account type (checking/savings)
    1. Click Save to save changes
    2. Verify debits and credits still balance after editing

    Best practice: If an error requires editing, determine why the error occurred and correct it in employee setup to prevent future issues.

    Deleting Direct Deposit Transactions

    When to delete

    Delete transactions when:

    • An employee's paycheck was entered incorrectly and will be voided/corrected
    • An employee should have received a paper check instead of direct deposit
    • Duplicate entries exist for the same employee

    How to delete a transaction

    1. Select the employee's transaction
    2. Click the Delete button
    3. Confirm the deletion
    4. Verify debits and credits still balance after deletion

    After deleting: If you deleted due to a paycheck error, void the paycheck and re-enter it correctly before exporting direct deposits.

    Deleting all transactions

    To delete the entire direct deposit file:

    1. Click Delete All button
    2. Confirm you want to delete all transactions
    3. All transactions are removed

    Use with extreme caution: This deletes ALL direct deposits for all employees. Use this only if:

    • The entire payroll needs to be voided and re-entered
    • You need to switch from direct deposit to paper checks for everyone
    • Major errors require starting over

    Exporting the Direct Deposit File

    Create the NACHA file

    When you're ready to transmit direct deposits to your ACH processor:

    1. Verify one final time that debits equal credits
    2. Confirm the settlement date is correct
    3. Click Export
    4. ProPay creates a NACHA-compatible text file

    File naming: The text file is named using an 8-digit format with .TXT extension (example: 55010424.TXT):

    • First 4 digits = Your unique sender ID number
    • Last 4 digits = Month and day (MMDD)

    File location: The file is saved to your ProPay directory (typically C:\PAYSOFT\PROPAY26 or your designated ProPay folder).

    Upload to your ACH processor

    After exporting the file:

    1. Log in to your ACH processor's website
    2. Go to the Upload File or Import File section
    3. Select the NACHA file ProPay created
    4. Upload the file
    5. Review the confirmation from your ACH processor
    6. Keep confirmation documentation for your records

    Follow your ACH processor's specific instructions for uploading files, as procedures vary by processor.

    Pre-notes (optional)

    Pre-notes (prenote notifications) test bank account information before processing actual deposits. They are no longer mandatory under NACHA regulations, but some banks may still require them.

    When pre-notes are required

    Check with your ACH processor or bank:

    • New employee direct deposit setups
    • Changes to employee bank information
    • Bank-specific requirements

    Creating pre-notes

    If pre-notes are required, you must manually edit the NACHA file:

    1. Export the direct deposit file as normal
    2. Open File Explorer and navigate to the ProPay directory
    3. Go to the directory containing the NACHA file
    4. Type: `EDIT filename.TXT` (using the actual filename)
    5. Locate Type "6" records (lines starting with "6")
    6. For each Type 6 record, edit columns 2-3 (Transaction Code):

    Change transaction codes:

    • 22 or 32 (Credit to employee) → Change to 23 (Prenote Credit)
    • 27 or 37 (Debit to employer) → Change to 33 (Prenote Debit)

    Change amounts to zero:

    • For each pre-note record, change the amount field to 0.00
    1. Save the file
    2. Upload the pre-note file to your ACH processor

    Important: Pre-note files do not transfer actual funds. After pre-notes are verified (typically 3-5 banking days), process regular direct deposits.

    Converting Direct Deposits to Paper Checks

    All employees - entire payroll

    If the entire direct deposit file is rejected by your ACH processor and you need to issue paper checks for everyone:

    1. Go to Employer > Employer Setup > Screen 4
    2. Uncheck the Employee Direct Deposits box
    3. Click Save
    4. Go to Paychecks > Print Payroll Checks
    5. Select All Employees
    6. Re-print all checks

    This prints paper checks for all employees, including those who were set up for direct deposit.

    After the issue is resolved:

    1. Return to Employer Setup > Screen 4
    2. Re-check the Employee Direct Deposits box
    3. Save changes

    Single employee

    If one employee's direct deposit was rejected and you need to issue a paper check only for that employee:

    1. Go to Employees > Add or Change and select the employee
    2. Click Direct Deposits
    3. Change the % and Amount to 0.00 (zero)
    4. Click Save
    5. Go to Paychecks > Void Payroll Checks
    6. Void the employee's paycheck
    7. Go to Paychecks > Enter New Payroll
    8. Re-enter the paycheck under the same pay date
    9. Go to Paychecks > Print Payroll Checks
    10. Select Selected Employees
    11. Double-click the employee's name
    12. Print the paper check

    After the issue is resolved:

    1. Return to employee's Direct Deposits setup
    2. Re-enter the correct percentage and/or amount
    3. Save changes

    Troubleshooting

    Direct deposits do not balance

    Issue: Total debits don't equal total credits.

    Solutions:

    1. Review each transaction line-by-line
    2. Common causes:
      • Missing debit for employer account
      • Duplicate credit entry for an employee
      • Incorrect amount entered during editing
      1. Check that each employee direct deposit has a corresponding employer debit
      2. Verify amounts match paycheck net pay
      3. Look for recent edits or deletions that may have caused the imbalance
      4. If the issue persists, delete the entire file and regenerate:
        • Delete all direct deposit transactions
        • Return to Print Payroll Checks
        • Re-print checks (system will regenerate direct deposits)

        Direct deposit file not created

        Issue: No transactions appear in the Direct Deposits screen.

        Solutions:

        1. Verify direct deposits are enabled in Employer Setup > Screen 4
        2. Ensure employees have direct deposit setup completed
        3. Confirm you printed paychecks (direct deposits generate during print process)
        4. Check that employee direct deposit percentages/amounts are greater than zero
        5. Verify the pay date matches the expected payroll

        ACH processor rejects the file

        Issue: Your ACH processor returns errors or rejects the uploaded file.

        Solutions:

        1. Contact your ACH processor for specific error details
        2. Common rejection reasons:
          • Invalid bank routing number
          • Incorrect file format
          • Settlement date issues (too soon or too late)
          • Duplicate file submission
          1. Verify bank routing numbers in employee setup
          2. Check that settlement date meets processor requirements
          3. Ensure you haven't already submitted the same file
          4. Re-export if necessary after corrections

          Employee reports direct deposit didn't process

          Issue: Employee says the direct deposit never appeared in their account.

          Solutions:

          1. Verify the transaction was included in the exported file
          2. Check with ACH processor for status of the specific transaction
          3. Verify employee's bank information is correct:
            • Routing number
            • Account number
            • Account type (checking vs. savings)
            1. Check if the employee's bank account is active
            2. Verify settlement date was appropriate for processing
            3. If deposit failed, issue a paper check as described in "Converting direct deposits to paper checks"

            Wrong settlement date

            Issue: Settlement date is incorrect on the file.

            Solutions:

            1. Before exporting: Change the settlement date field and export
            2. After exporting: Delete the file, update settlement date, and re-export
            3. After uploading: Contact your ACH processor immediately to cancel/modify the file
            4. Verify your system date is correct (affects default settlement date)

            Best Practices

            Daily procedures

            1. Process direct deposits once per day for all clients
            2. Verify balancing before every export
            3. Keep records of exported files and ACH processor confirmations
            4. Review transactions for any unusual entries
            5. Upload promptly after exporting

            Quality control

            1. Double-check bank information during employee setup
            2. Verify amounts match paycheck net pay
            3. Confirm settlement dates allow adequate processing time
            4. Test new employee setups with pre-notes if required
            5. Keep backup copies of exported NACHA files

            Communication

            1. Notify employees of direct deposit processing schedule
            2. Inform employees of settlement dates (when funds will be available)
            3. Alert employees if switching from direct deposit to paper checks
            4. Provide confirmation to clients when direct deposits are submitted

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