PAYROLL: Employee Bank Account Verification Controls

Overview

We’ve introduced enhancements to Employee Bank Account Verification Controls to improve how bank account updates and verification are handled in payroll. These updates ensure compliance with banking regulations, improve payment reliability, and provide better visibility to payroll administrators and employees when bank account changes occur.

The update includes automatic handling of bank account corrections received from banks, improvements to the bank verification flow, and better controls for managing employee bank accounts.

Key Updates

1. Automatic Bank Account Updates from Notification of Change (NOC)

Bank account details will now be automatically updated when a Notification of Change (NOC) is received from the receiving bank.

What is NOC?
A Notification of Change is sent by the Receiving Depository Financial Institution (RDFI) when certain bank account information—such as routing number, account number, or account type—needs correction. Although the payment is processed successfully, NACHA regulations require the correction to be applied within 6 banking days to avoid future payment failures.

With this update:

• Bank account details will be automatically updated in the system when a NOC webhook is received.
• Updates ensure data consistency between payroll systems and banking partners.
• Both payroll administrators and affected employees will be notified about the change.
• Account numbers will remain masked for security, showing only the last four digits.

2. Email Notifications for Bank Account Updates

When a bank account is updated due to an NOC:

• Payroll admins will be notified if a legal entity bank account is updated.
• Employees or contractors will be notified if their personal bank account is updated.

The notification will include:

• Bank name
• Masked account number (last 4 digits)
• Routing number

This ensures that users remain aware of any bank-side corrections applied to their accounts, even though no action is required from them.

3. Updated Bank Account Verification Flow

The bank account verification process for employees and contractors has been updated.

Previous behavior

• Bank accounts were verified immediately after being added using a $0 ACH validation transaction.

New behavior

• Bank accounts are now verified during the first successful payroll direct deposit instead of at the time of addition.

Changes introduced:

• The status “Verification Processing” has been renamed to “Verification Pending.”
• Users can now add bank accounts and manage payment information even when verification is pending.
• Bank accounts with Verification Pending status can be used for payroll payments and net pay splits.

This change simplifies the bank setup process and reduces delays when employees add bank accounts.

4. Net Pay Split Enhancements

Employees can now include bank accounts with “Verification Pending” status in their net pay split configuration.

Previously, only verified accounts could be used for pay splits. This restriction has now been removed, enabling employees to configure payroll distribution more easily.

5. Improved Payroll Payment Method Handling

During payroll runs (both regular and off-cycle payrolls):

• Employees with a pending bank verification can still receive payments via direct deposit.
• The earlier fallback logic that defaulted payments to cash or paper checks for unverified accounts has been removed.

This ensures a smoother payroll experience and reduces manual payment handling.

6. Ability to Delete Failed Bank Accounts

We’ve also addressed a product limitation where users could not remove bank accounts if verification failed.

With this enhancement:

• Employees and contractors can delete bank accounts that fail verification, even if their payment method is set to Direct Deposit.
• If a failed bank account was part of a net pay split, it will automatically be removed.
• The system will redirect the allocated amount to the remaining bank account in the split.
• If the employee had only one bank account and verification fails, the system will treat them as having no bank account during payroll processing.
• Failed bank accounts will only allow deletion; editing is no longer supported.

This resolves scenarios where users were previously blocked from updating incorrect bank details.

7. Activity Log Updates

System activity logs will now capture automatic bank account updates triggered by bank notifications.

Example log entry:
“Auto updated bank xxxxxx1234”

The log will record changes to:

• Account type
• Bank name
• Routing number
• Account number

This provides better audit visibility and traceability of bank account updates.

Impact

These improvements help:

• Ensure compliance with NACHA regulations for handling Notification of Change (NOC).
• Prevent future payment failures caused by outdated bank details.
• Improve employee experience when adding or managing bank accounts.
• Reduce manual payroll corrections and support tickets.
   

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