I received an ACH return for an employee's direct deposit; what are the next steps? (2024)

FAQs

What happens when an ACH is returned? ›

When ACH payments go wrong, a few things can happen. But the main result of a failed ACH transfer is an ACH return – the originator receives a notification of failure, and funds go back to the bank they came from (if any funds were transferred).

What should I do if my direct deposit was returned? Payers get returned deposits back within three business days. We recommend contacting your payer directly to verify the deposit details, or to arrange another method of payment.

Legally, an employer can only reverse a direct deposit under specific conditions and within a short timeframe. After the reversal window, an employer cannot take money from your account without your explicit consent. In most instances, the employer will inform the employee of the mistake and the upcoming reversal.

An Automated Clearing House (ACH) return is the equivalent of a bounced check. An ACH return occurs when a registrant provides bank information in order to make a payment; however, the payment is returned by the bank for one of many reasons, the most common of which include: Insufficient funds. A stop payment.

Because payments are taken automatically with ACH debit payments, the payment process may initiate even if you don't have sufficient funds in your account. When an ACH debit payment is made, it must go through a few steps before any money changes hands.

An ACH Return means that the Direct Deposit/ACH Credit to an employee's bank account was not successful, and the amount of that transaction is being returned to your company bank account. ACH Returns are typically received within 2 business days of the payroll/payment date.

When your direct debit bounces, your bank will probably contact you to inform you, this will give you time to move money into your account and retry the payment. If your payment is retried and fails, your bank may stop and refuse to process the direct debit payment. If this happens, your bank may charge you a late fee.

Direct Deposit Will Be Returned to the Sender

It can take about five to 10 days for funds to be returned to the sender.

In the case of your payment, the ACH Operator sends a file to your bank or credit union, instructing it to credit the funds to your account on payday. Your bank or credit union is the “RDFI” (Receiving Depository Financial Institution). The RDFI places the money in your account, making you the “Receiver.”

Does an ACH go through immediately? ›

ACH debits, such as bill pay or withdrawals, generally take 1-3 days to process, while ACH credits, such as direct deposits or vendor payments, generally take just one day to process. Same-day ACH, which typically requires an additional fee, processes the same business day.

While ACH payments can include both a credit (adding funds) and debit (withdrawing funds), direct deposits are only credit payments, in which money is credited to another account through ACH.

Does the lucky employee have to give back that money, too? Yup. Both state and federal labor and employment laws give employers the right to garnish the future wages of an employee — subtract chunks from a worker's paycheck — in cases of overpayment.

Accepted by Wrong Account: If you incorrectly entered an account or routing number that belongs to someone else and the financial institution accepts the deposit, you must work directly with the respective financial institution to recover your funds.

Reversing a deposit is generally the term used if you need to stop the deposit of a check or cash and get that back. A branch can reverse the deposit if the ATM is located at the branch. Generally this will be with a check since getting back a cash deposit is easy.

Originating Depository Financial Institution ODFI

An originating Depository Financial Institution (ODFI) is the bank or financial institution where the transfer started and where the funds were meant to come from. With an ACH return or reversal, the RBFI returns the funds or rejects the transfer back to ODFI.

When an ACH transfer cannot be processed, the ACH network returns a “rejection code” or “return code” that explains why a transfer didn't complete. The reason could be as simple as a wrong account number, or as complicated as rules and restrictions that financial institutions place on these types of transactions.

ACH rules stipulate that when you request an ACH payment from your client's bank account and your payment is rejected due to insufficient or uncollected funds, you can retry the payment two more times. But you have to retry this payment within 180 days from the settlement date of the initial entry.

A returned payment fee is a charge that occurs when a payment bounces due to insufficient funds or other reasons. Returned payment fees can be costly on their own, but they can also be accompanied by other charges.