Is there ever an instance where a direct deposit cannot be reversed?
Author: Ryan F. Donovan
Yes. The national NACHA (The Electronic Payments Association) guidelines say that an employer is permitted to reverse a direct deposit within five business days. Assuming that no applicable state laws override that, this is the guideline the employer must follow. Once five business days pass, the employer is no longer allowed to reverse the direct deposit. If the employee is in a state where direct deposit reversals are restricted, such as California, the employee must either sign off on the reversal or the employee has to pay back the employer manually.
If the employee refuses to pay back the money, the employer should avoid simply withholding it from a future check (if any) without the employee's signed authorization. Doing otherwise is illegal in some states. If an employee refuses to pay and no legal opportunity exists to retrieve the funds, the employer's only real options are to go to court or just take the loss. Note that if the employee keeps the wages, the wages should be reported on the W-2 so that what the W-2 says and what the employee actually received is in congruence.
How to Void, Reverse and Reissue a Direct Deposit
Voiding a Direct Deposit(s)
With ADP Payroll, you can easily make changes to a direct deposit. Here are some common reasons why a void is needed:
An employee was paid the incorrect amount
An Employee’s pay was taxed wrong
An Employee is no longer working and should not be paid
What is a void? A void is classified as a direct deposit that needs to be deleted. To void the pay, hover over the “Home” tab and click on “Void Check”. Here you can select the check date or employee in which the check(s) needs to be voided. Then you can proceed with voiding the checks on the next payroll. It will record as a “pending item” until it is pushed through on either a special or regular payroll. The tax monies will be refunded within 3-5 business days. As for the direct deposit net pay, this is called a reversal.
Reversing a Direct Deposit(s)
Reversing a direct deposit(s) means to send the net pay monies back to your Company Bank account. This may be for a variety of reasons, but the goal is to have your company bank account given the net pay monies back to reimburse you for the amount paid. To reverse the net pay of the direct deposit, this currently needs to be done by our Customer Support team. For help, please contact us (see below) and we will be happy to help. We will discuss available options to ensure a positive outcome, such as a manual check or a re-run of the corrected direct deposit.
Reissuing a Direct Deposit(s)
Reissuing a direct deposit is crucial to ensure timely payment of your employees. Once a void and reversal has been processed, and any incorrect direct deposit banking info has been corrected, it is then safe to reissue the direct deposit for one or more of your employees. This can be done either by redoing the entire pay or through a non-taxable reimbursement for the net pay.
To do this, simply hover over the “Home’ tab and click “Special Payroll”. This allows you to build a payroll and create your own pay dates and check dates manually, and then repay an employee(s).
If you need any further assistance, the ADP Support Representatives are happy to help you every step of the way. Email us at [email protected], chat or call us866-931-2445 8am-8pm, M-F EST.
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- Legal Business Name
- Company Address
- Phone Number
- Legal First and Last Name
- Form W-4 - Example
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- Hourly or Salary Pay Rate
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When Direct Deposit Shifts Into Reverse
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March 3, 1997, Section B, Page 4Buy Reprints
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A month ago, $5,876 mysteriously disappeared from Bonnie Lester's bank account.
Ms. Lester, a longtime social worker who lives in the Riverdale section of the Bronx, was amazed to learn that her employer withdrew the money from her account electronically without notifying her, something it could do because she had signed up for a direct deposit program at work.
''I was shocked,'' she said. ''Apparently this can happen to anyone.''
Ms. Lester discovered that direct deposit, an increasingly common way for employers to pay workers, can be a two-way street. While Ms. Lester's former employer says it was justified in taking the money, others say the case shows how direct deposit can be abused.
State Senator Franz S. Leichter plans to propose legislation that would require employers in New York State to give 10 days' notice before trying to withdraw a direct deposit payment.
Ms. Lester's troubles began after she quit her job as executive director of the Northern Westchester Shelter for battered women, in Pleasantville, Westchester County. Until she clashed with the agency's board chairman, she had run the shelter, which had a capacity of 12 women, for four and a half years.
In two parting payments, the shelter paid $5,876 into Ms. Lester's account to cover the 10 weeks of vacation time that she claimed.
Two weeks later she discovered that several checks she had written had bounced. She phoned her bank, Chase Manhattan, and learned that her former employer had removed the money in two withdrawals -- almost a month after depositing it.
And she was at a loss about how to get the money back.
Ms. Lester called her former employer about the money, but officials at the shelter did not want to discuss it. Then she called the ADP Corporation, which handles the shelter's direct deposits, and it said the matter was between her, her bank and her employer.
Next she called Chase Manhattan, and an official there reminded her about the fine print in the direct deposit agreement with her employer. She had paid scant attention to it when she signed it, but it states, ''If funds to which I am not entitled are deposited in my account, I authorize you to direct the financial institution to return said funds by any such method, and I authorize the financial institution to debit the same to my account.''
That was the language the Westchester shelter relied on to remove money from her account.
''I'm embarrassed that I signed an agreement like this,'' Ms. Lester said. ''A lot of people I spoke to were shocked that they can go into your account this way through direct deposit. You're not entitled to any due process.''
Judith Morse, chairman of the shelter's board, declined to be interviewed and referred questions to the agency's lawyer, Daniel Isaacs, who defended the shelter's decision to withdraw the money. Mr. Isaacs said the 10 weeks' vacation pay had not been properly authorized, adding, ''She did not accrue the time she was claiming.''
Mr. Isaacs also said that some records were missing from the shelter and that Ms. Lester had taken off some days from work without permission. Ms. Lester said that was not the case. She said that, to help the financially struggling shelter survive, she agreed to take a $2,000 pay cut, relinquished her health insurance and spent many nights and weekends at the shelter without asking for extra pay.
Whatever the merits of the dispute, it now looks as if Ms. Lester will have to sue if she wants to get back any of the $5,876. She says she will base her case on a New York State law stating that an employer can deduct nothing from an employee's wages unless the deduction is required by law or expressly authorized by the employee.
Nessa Feddis, senior counsel with the American Bankers Association, said it was rare indeed for employers to use a direct deposit agreement's provisions to remove money from an employee's account. She said most instances of such withdrawals occur when a bookkeeper sends duplicate paychecks to an employee for the same week's work.
''If the U.S. Government or if my employer deposits a million dollars in my account erroneously, am I entitled to it?'' she said. ''Of course not.''
But an aide to Senator Leichter said there should be advance notice to assure due process.
''If it's a legitimate thing, where somebody got paid for a couple of days they didn't work, no one would object,'' William J. Zwart, Mr. Leichter's legislative counsel, said. ''In a case like this, where the employee objects, the money would stay in the employee's account, and the burden would be on the employer, not the employee, to do something about it.''
Can They Take Wage Overpayment Out of My Bank Account?
If your employer overpaid you, federal law allows it to deduct the full overpayment from your future paycheck without your written consent. State law may say you have to give your written consent for the deduction to occur. If you were overpaid by direct deposit, your employer can reverse the transaction out of your bank account, but it must pay you for your time worked during the pay period.
Direct Deposit Reversal
If you have direct deposit, your employer can issue a reversal request to your bank, which then attempts to take the wages out of your account. The reversal must be for the full amount of the transaction that went into your account. For example, say you receive one direct deposit transaction for your regular salary and a different one for a bonus. If the bonus was issued in error, your employer can simply reverse the bonus out of your account. However, if both items were done as one transaction, a reversal must be done for the full amount. In this case, your employer should then pay you your correct salary via another method, such as a paper check.
Time Limit and Rejected Reversals
The bank can process reversals only up to five days after the check date. Your employer can reverse your wages without telling you during this five-day period. If the reversal fails because you withdrew the funds, your employer cannot go into your account and take any money out. The reversal has to match the actual transaction that your employer placed into your account. Otherwise, your employer must get a court order to take money out of your bank account.
If your employer wins a lawsuit against you and obtains an order to garnish your account, depending on state law, the bank may not have to notify you of the garnishment. If your account holds federal benefits, such as veterans, Social Security and railroad retirement benefits, those funds might be protected from garnishment. In addition, state law may exempt other funds from certain deposits to your account. The garnishment notice should provide instructions on how to file a claim of exemption to protect your exempt funds from garnishment. If the bank is not required to notify you, you may not know about the garnishment until the bank freezes your account.
To maintain a positive relationship with your employer, repay the money promptly. If a bank account reversal is not possible, depending on the overpaid amount, your employer may take the full amount from your next paycheck or over a series of paychecks. Your employer might allow you to offset the overpayment with your available vacation or leave hours.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.
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