The new NACHA rules: How will they impact payroll processing?
From the May 2009 issue of Ceridian Connection.
Recent changes to COBRA under American Reinvestment and Recovery Act (ARRA) legislation, along with revisions to the Family Medical Leave Act (FMLA), have employers in a flurry to update systems and processes to ensure they are in compliance. Now the clock is ticking as another important compliance deadline approaches on September 18, 2009.
This September, at the direction of the Office of Foreign Assets Control (OFAC), the National Automated Clearing House Association (NACHA) will be implementing new operating rules that would require certain "domestic" electronic ACH entries to be classified as "international." These will utilize the new NACHA standard entry class code, related rules, and formats. The new ACH format is referred to as International ACH Transaction (IAT) and requires seven new addenda records to travel with the ACH entry. Currently, this additional data is not required in order for employers to process their electronic payroll files.
To prepare for the deadline, Ceridian recommends that employers take the time to become familiar with the IAT regulations and begin to review whether their payroll ACH transactions may be subject to the new rules.
"Right now, it's critical for organizations to evaluate their business practices and talk with their financial institutions and legal departments in making their determination whether this new rule applies to their business," urges Jill Barber, Ceridian compliance manager.
Understanding ACH versus IAT
The ACH Network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system governed by the NACHA Operating Rules. These rules provide for the interbank clearing of electronic payments for participating depository financial institutions. The Federal Reserve and Electronic Payments Network act as ACH Operators -- central clearing facilities through which financial institutions transmit or receive ACH entries.
ACH payments include:
At the most basic level, an IAT is a payment transaction involving a financial agency that is not located in the territorial jurisdiction of the United States. While not all payments involving non-U.S. financial institutions are IAT, it is clear that some payroll payment transactions will be required to comply with the new rules. For example, transactions for retirees living abroad who have supplied their former employer with direct deposit transfer instructions to accounts domiciled outside the U.S. qualify as IAT transactions.
Recently, the American Payroll Association (APA) inquired as to whether the payroll taxes and other subsequent payments related to IAT payroll entries should also be coded as IAT. OFAC and NACHA clarified that payroll taxes, child support, and other subsequent payments do not need to be coded as IAT at this time.
NACHA has published scenarios for businesses to reference when evaluating whether specific transactions qualify as IAT. The documents are not intended to include all possible IAT situations. NACHA may provide additional guidance in future documents if significant questions arise about the new rules.
Corporations and in fact, all organizations, must comply with OFAC requirements and are subject to the same penalties as financial institutions. Therefore, it is critical to take the time to learn and understand the rules now to avoid bumps further down the road. NACHA has compiled the following IAT readiness checklist to help in preparing for the upcoming deadline:
Naturally, the upcoming changes will raise many questions among payroll professionals about the exact application of NACHA rules and the processes required to achieve compliance.
"We are working to provide resources for our clients to educate them on what this new NACHA change is," says Janet Schneider, Ceridian project manager, IAT. "Ceridian continues to monitor IAT guidance by communicating regularly with NACHA, APA and other organizations."
For additional information about IAT and the new operating rules, visit the NACHA Web site.
Recent changes to COBRA under American Reinvestment and Recovery Act (ARRA) legislation, along with revisions to the Family Medical Leave Act (FMLA), have employers in a flurry to update systems and processes to ensure they are in compliance. Now the clock is ticking as another important compliance deadline approaches on September 18, 2009.
This September, at the direction of the Office of Foreign Assets Control (OFAC), the National Automated Clearing House Association (NACHA) will be implementing new operating rules that would require certain "domestic" electronic ACH entries to be classified as "international." These will utilize the new NACHA standard entry class code, related rules, and formats. The new ACH format is referred to as International ACH Transaction (IAT) and requires seven new addenda records to travel with the ACH entry. Currently, this additional data is not required in order for employers to process their electronic payroll files.
To prepare for the deadline, Ceridian recommends that employers take the time to become familiar with the IAT regulations and begin to review whether their payroll ACH transactions may be subject to the new rules.
"Right now, it's critical for organizations to evaluate their business practices and talk with their financial institutions and legal departments in making their determination whether this new rule applies to their business," urges Jill Barber, Ceridian compliance manager.
Understanding ACH versus IAT
The ACH Network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system governed by the NACHA Operating Rules. These rules provide for the interbank clearing of electronic payments for participating depository financial institutions. The Federal Reserve and Electronic Payments Network act as ACH Operators -- central clearing facilities through which financial institutions transmit or receive ACH entries.
ACH payments include:
- Direct payment of consumer bills such as mortgages, loans, utility bills and insurance premiums
- Direct deposit of business-to-consumer payments such as payroll and taxes
- Business-to-business payments
- E-checks
- E-commerce payments
- Federal, state and local tax payments
At the most basic level, an IAT is a payment transaction involving a financial agency that is not located in the territorial jurisdiction of the United States. While not all payments involving non-U.S. financial institutions are IAT, it is clear that some payroll payment transactions will be required to comply with the new rules. For example, transactions for retirees living abroad who have supplied their former employer with direct deposit transfer instructions to accounts domiciled outside the U.S. qualify as IAT transactions.
Recently, the American Payroll Association (APA) inquired as to whether the payroll taxes and other subsequent payments related to IAT payroll entries should also be coded as IAT. OFAC and NACHA clarified that payroll taxes, child support, and other subsequent payments do not need to be coded as IAT at this time.
NACHA has published scenarios for businesses to reference when evaluating whether specific transactions qualify as IAT. The documents are not intended to include all possible IAT situations. NACHA may provide additional guidance in future documents if significant questions arise about the new rules.
Corporations and in fact, all organizations, must comply with OFAC requirements and are subject to the same penalties as financial institutions. Therefore, it is critical to take the time to learn and understand the rules now to avoid bumps further down the road. NACHA has compiled the following IAT readiness checklist to help in preparing for the upcoming deadline:
- Familiarize yourself with new rules related to IAT
- Review IAT scenarios
- Review existing OFAC compliance policy
- Review existing vendor, employee and pension payments for possible IAT applications
- Ensure that additional mandatory information is available in your company database to populate fields if IAT is required
- Communicate with financial institutions to ensure they will be prepared for IAT implementation
- Test financial institutions or vendors
Naturally, the upcoming changes will raise many questions among payroll professionals about the exact application of NACHA rules and the processes required to achieve compliance.
"We are working to provide resources for our clients to educate them on what this new NACHA change is," says Janet Schneider, Ceridian project manager, IAT. "Ceridian continues to monitor IAT guidance by communicating regularly with NACHA, APA and other organizations."
For additional information about IAT and the new operating rules, visit the NACHA Web site.
