WSW - Podcast Reversing a Direct Deposit
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[00:00:00]
Introduction and Welcome
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Dan DeLong: Oh, welcome to another workshop Wednesday brought you where it's all about casual conversations for serious workflows, and it's brought to you by school bookkeeping.com where it's allows you to keep learning QuickBooks
Rachel Dauchy: Your way.
Dan DeLong: That's right. However you want to learn. [00:01:00] If you need some guided help, we're here for that. If you need some work on your own. We're here for that too. So anyway. Hi Rachel. How are you?
Rachel Dauchy: Good. I'm glad to be back and thanks Sharon for taking, I don't know the right word for taking my place last week.
I appreciate that.
Dan DeLong: Yes, that was there's no filling your shoes, but because the heels are too high.
But, duty calls, when duty calls and that you gotta take care of clients when you when they need taken care of. Yeah, appreciate sharing filling in for for Rachel during during last week.
Direct Deposit Reversals: An Overview
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Dan DeLong: But today we're gonna be unpacking, direct deposit reversals. So that's the question of the day, right?
Have you ever had to reverse a direct deposit paycheck for an employee? When I was asking [00:02:00] Rachel if she ever did it, she said, yeah I do that in the merchant center. So wait a minute. That's not a direct deposit. Universal, I was thinking
Rachel Dauchy: a CH payment. Paying a bill? Yeah. Or no, Receiving a payment on a, on an invoice. That's what I was thinking.
Dan DeLong: Yeah. Which we can that's a really great topic for another session of doing refunds. Yeah. And that's actually easy Keasy,
Rachel Dauchy: but I love QuickBooks payments. But no, I've never done this and I. I don't have a ton of experience with QB payroll, except for now we've got some clients that are heavy users of it and we're learning a lot about it.
But I haven't really done a lot in QuickBooks Online payroll, that's not anything I've done.
Dan DeLong: I mean in, in, in general, right? Most businesses unless they're hobbyists that have their sole [00:03:00] proprietors are gonna have some kind of payroll service associated with their, business. And this situation does come up. In, in payroll? In general. Yeah. Because sometimes
Rachel Dauchy: they, somebody's made an error in payroll and you need to reverse that direct deposit and, but lemme just ask you a quick question as well.
QuickBooks Payroll Services and Contractor Payments
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Rachel Dauchy: In a lot of the other payroll systems that we use, you can also pay 10 99 contractors, not just employees.
Can you do that in QBO payroll as well?
Dan DeLong: Yes. So it's not always an employee
Rachel Dauchy: that you may have to do a reversal.
Dan DeLong: Yes, exactly. So when you are paying contractors through. Through QuickBooks Online pay through the payroll service, that, and the reason that I hesitated to say yes is that, when you're doing it [00:04:00] through, when you're paying contractors through direct deposit, through the payroll service, they are treated.
As an em, an employee as far as billing is concerned. So, whatever payroll service that you're on, core, premium Elite, which incidentally are the membership levels of school bookkeeping. Yep. And by the way, elite. Awesome.
Rachel Dauchy: Dedicated helper. Amazing.
Dan DeLong: And that's, that was the whole idea of us choosing the, membership levels.
Yeah. Because, precious metals are so yesterday, right? Silver, gold, platinum I'm running out of, I'm running out of precious metals to call them. So we thought we'd just take a, page from Intuit and use that.
Rachel Dauchy: And it makes sense it's, a little more, elaborate than good, better, best. You know what I mean? Exactly. But they're, [00:05:00] the elite service that they do provide is very helpful. We've been utilizing their help desk a lot.
Dan DeLong: Awesome. And so w when you, are, when you subscribe to either one of those, QuickBooks Online. Payroll services Core premium or lead The per employee charge comes, is based off of that subscription level.
They've raised their prices so much, I don't remember what they are, but off the top of my head. But, when you have core, it's $6 or six 50. Per employee plus the monthly fee.
Rachel Dauchy: And then it's an additional, yeah, and most services have it that way too. That's not unique.
Dan DeLong: Exactly. However, when you're paying contractors [00:06:00] through your payroll service they're treated as an employee,
Rachel Dauchy: so you have to pay for that.
Dan DeLong: So if you're paying them or that
Rachel Dauchy: you're paying them outside of the payroll, then you wouldn't, yeah. So that doesn't really make sense to do it that way
Dan DeLong: right now.
So, yes, you can pay your contractors through direct deposit, through the payroll service, and, you just be aware that whatever payroll service that you're using, you'll be charged additionally for those contractors, for direct deposit outside of the payroll service. If you're not using QuickBooks Online payroll, you can sign up for.
Contractor direct deposit, and those per contractor fees are much smaller, but you can't do both. You cannot do contractor direct deposit and QuickBooks Online payroll because [00:07:00] essentially. The direct deposit service is part of the payroll service, so you can't have, yeah, there is not a cake. And eat it too.
When it comes to, if I have QuickBooks Online payroll and I wanna pay them direct deposit, while you're gonna pay the per. Employee costs, whatever that is because of payroll service, so that make sure that you're doing your due diligence and making don't just opt in to pay your, contractors with direct deposit because you may be paying more, as a small business.
And these days we're all about. Controlling our costs, right?
Rachel Dauchy: Yeah. And it's, sometimes frustrating 'cause as somebody that has employees and contractors, now I understand why some of my clients wanna pay their contractors through. Payroll because then they don't forget. You know what I mean?
And so [00:08:00] that's what now I understand that pain. I'm like, oh I'd rather have them going through payroll even though no payroll taxes are being deducted. Yeah. Because then it, they don't fall through the cracks.
Dan DeLong: Yeah. And that way, putting them all under one roof, it might be less mistakes, yeah. And maybe that's worth paying the extra cost four
Rachel Dauchy: bucks or whatever it is. Yeah. Yeah.
Dan DeLong: And with payroll service you get 10 99 e-filing included and Yeah. So there may be some other benefits of doing it that way or doing it under the payroll service that, fine. I'll pay, yeah. I'll pay the extra fee rather than trying to cut corners and save a few bucks. Maybe it causes some challenges that way.
Challenges and Solutions in Payroll Management
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Dan DeLong: So one of the challenges is, whoops, [00:09:00] I paid the wrong person, or I said it to the wrong bank, or I've done something Yeah. Where the direct deposit has gone out.
After you click that button to submit, there's not a way. There's no, oops, I locked the keys in my car.
Rachel Dauchy: Yeah. And that's why I actually have a question for you. Because I used to be a payroll manager in a. Regular company and in your prior life, they're always mistakes. Now we are Gusto partners, so we usually if we're running payroll for anybody, we're usually doing it through Gusto.
But now Gusto you can, cancel payroll. Yeah. If you've already said run payroll, you have a little bit of a grace time. What's the situation with QBO? Tell me. 'cause I'm very interested. Is there like a little thing even before you have to [00:10:00] reverse a direct deposit paycheck?
Dan DeLong: Yeah.
New Changes in Direct Deposit Reversals
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Dan DeLong: So they've actually made some changes and that's what we're gonna unpack.
The changes. Okay. And I'm gonna talk and I'm gonna talk about the way things were as if, because it was a painful process. It was very painful when that occurred. And, not bad ing to it, they were just following the rules of. Nacha and we'll talk about what NACHA is and why it, was so painful.
I don't know. Nacha, it's the, yeah, nacha. Not, Nacho. Nacho. N-A-C-H-A. It's the National Automated Clearinghouse Association. Yep. All right. So those, that's the organization that sets the rules for. A CH money movement. And yeah, those rules have been in place for a long time and they're very [00:11:00] antiquated, right?
And we talked I think Digits talked a little bit about it at scaling New Heights a couple years ago about how those, rules are so antiquated you can't get a whole lot of detail from. 92 characters, which is, I don't know why they settled on a 92 character limitation.
There's probably some, technology, technological reason of why that that those character limits were set in place, but they probably don't exist anymore. I guessing a lot
Rachel Dauchy: of that, the clearing house. Rules and regulations were probably set before modern technology. Yeah.
Because clearinghouse has been a thing for a very long time.
Dan DeLong: It's, one of those things live in the now, there's, better ways to do things and things we're getting, with fast money movement, like [00:12:00] instant. Gratification when it comes to that.
What was happening is that the, the a CH, the the real World Money movement, because a CH requires this, basically it's a telephone game between financial institutions when it comes to sending money. It's the money gets pulled. Or pushed depending on the perspective.
And there's an intermediary bank between all of that. And so it's, the, intermediary bank says, I got it. And the, receiving or the ending bank says, okay, and then it goes. Goes to the next.
Rachel Dauchy: Wouldn't you love to do that Accounting?
Dan DeLong: Exactly. And then, the recipient's bank will, it'll get sent.
So that's now a push, and then it's a communication [00:13:00] signal between the two, two banks. It's did you get it? And then they'll say, yeah, I got it. And then it'll go back to the recipient's bank and then actually. Settle. Yeah. And all of that takes time, even though it's all done instantaneously, but the, signal back and forth between the all three financial institutions, the, source bank, the recipients bank, and the bank actually doing the transfer.
Rachel Dauchy: Yep.
Dan DeLong: All of that takes about. Two days on each side of the, equation. A lot of things can happen unless you're
Rachel Dauchy: going bank, same bank to same bank. I learned that when I worked in private banking.
Dan DeLong: Wow. It's gotta be, if it's the same financial institution you get Yeah. You get the fast pass.
The TSA pre-check
Rachel Dauchy: Yeah.
Dan DeLong: Of a CH. So what was happening [00:14:00] with like instant money movement is that middle bank. Whoever is actually doing and initiating the money movement is taking on the financial risk if any one of those banks has a problem.
Rachel Dauchy: Makes sense.
Dan DeLong: So here we have this situation where a direct deposit.
Is initiated. And normally before all of this, I gotta have my money now, or same day, direct deposit that sort of stuff. Before all of that, you had a lead cutoff time where, you know, and then typically that was two days before the actual paycheck date where. If you didn't do anything if you, crossed that lead off time, you couldn't do anything.
You know the money. It was like you dropped a, letter in the blue
Rachel Dauchy: Yes.
Dan DeLong: Mailbox, right? [00:15:00] Yep.
Rachel Dauchy: It was
Dan DeLong: already in transit. That was, it was, even though hey the, letter's in the box fucking just talked. Yes. And
Rachel Dauchy: I know this from being a payroll manager. 15 years ago and if year, if payroll was processed and something needed to be reversed. Oh, you needed to wait for it to settle and then good luck,
Dan DeLong: so what before all of this, even though you could say, Hey, I can just wait until the mailman comes, and then they can give me the, bo the letter and no, lock him down.
You can't, you cannot. Once, once it's gone past that threshold there's, no return, right? You have to wait until somebody receives it and then you can initiate the process. So what was happening with this two day lead time? Adding to it, and I don't, and I'm sure other, payroll providers [00:16:00] were doing the same thing. Yeah. What was happening is they were doing the funding to the, to, to the paycheck. The, employee, excuse me.
Rachel Dauchy: Yeah.
Dan DeLong: So they were doing the funding to the employee at the same time that they were pulling from the financial bank.
So they eliminated this phone. Tree of, yeah, I got it. Did you get it? Yes. Okay. Everything that would take typically four or five business days for that dust to settle. Now they're doing it in two days, so now they sp they've sped it up, but they're doing it simultaneously, pulling from the employer's bank account and depositing into the employee's bank account.
If there is. A problem, with that employee's bank account, or they send it to the wrong employee or they paid someone that has been terminated, which is these are [00:17:00] scenarios that,
Rachel Dauchy: which those things happen frequently, I'm guessing.
Dan DeLong: Right? They happen long enough or often enough for a process to be in place.
Yeah. Is, they've realized, oh no something is wrong. And they would contact Intuit to say, Hey, I need to put a stop on that. It, you can't, right? Like it's, in transit, right? Like you cannot, it's in that mail blue mailbox where we're, we cannot.
Interfere with the postman at this point. We have to wait until the person gets it. And then, there's a process, right? So because of all of those antiquated systems and the rules of the of, the nature, of the rules of the game, then [00:18:00] it became quite an undertaking to reverse a direct deposit.
The situation is they've sent the money and they've sent the money properly, but in, in the case of they need to get the money back. And the situation is maybe the person is not around or not cooperative or Yeah. Or anything along those lines. Then that is where a direct deposit reversal comes into play.
And again, because of those rules, there's a lot of burden of proof when it comes, to that, and fees that, that, that occur, when that happens. So it was never a great conversation when a customer called in to Intuit and say, Hey, I need to do, initiate a direct deposit reversal because [00:19:00] the best option is work with that person.
Yeah. And
Rachel Dauchy: a lot of times that's not gonna happen, right? And by the way, it's usually never the mistake of the recipient of the paycheck, right? It's usually the person keying in whatever, because, and it's usually an hourly employee. It's never a sal. Not never, but it's less likely to be a salaried employee.
But it's usually somebody that they're, they've got hours and they have to have the hours keyed in and. Blah, blah, blah. And a lot of times there's mistakes with that,
Dan DeLong: right? It the conversation typically went well, you gotta put in a request. There's a fee of $75, whether, or not we collect it or not, right?
It's just the process of initiating a direct deposit reversal.
Rachel Dauchy: Yeah.
Dan DeLong: If. [00:20:00] And that's typically where it, boiled down to, hey, it's best to work with the recipient directly to get the money back. Yeah. And then reissue the paycheck. Or in, in the case where they sh they paid somebody that they shouldn't have, then it's just they need to get the money back.
Yeah. So when it's an hourly employee where they've worked part-time and they've terminated them, that's probably not a conversation that they want to have. And also the paycheck may not. The juice might not be worth the squeeze. Yeah. So if they paid somebody $150 and they have to pay a fee of $75, whether they get the money or back money back or not, then it's okay, maybe we'll just call out a wash and maybe we can request it back.
Yeah. That, and
Rachel Dauchy: that does happen too, a lot. It's too bad.
Dan DeLong: But in that regard, Intuit is just following [00:21:00] the, rules of, NACHA at that point. Yeah. And and then start, I started hearing well Hey, Gusto doesn't charge me for this. Or, Hey, on pay doesn't charge me for this, or, a DP doesn't charge me for this.
Why is Intuit still charging me for this? They finally heard enough of those kinds of complaints or feedback. And as of November of 2024, this is how you know. How, great this news traveled. Because I just heard about it by reviewing. Oh, wow. Review. Wow.
Rachel Dauchy: So you just heard about it?
Dan DeLong: Yeah. Like I was reviewing the in the know
Rachel Dauchy: since then. Interesting. Yeah.
Dan DeLong: Yeah, so this has been a, this has actually been around for almost a year. Yeah. And here we are talking about it almost a year later. And that's
Rachel Dauchy: a if you dunno about it, because you know everything about Intuit and there updates and stay on top of that.
But [00:22:00] if so, if you don't, then that must have been. Swept under the rug blip, they're probably like, let's not advertise this people.
Dan DeLong: Yeah. They had it on the in the Know webinar. And, they have it on their, in the know series.
And that's how I discovered it was Okay.
I was looking at, I was looking at historical things. I'm like, what would make for a good. Good topic. I'm like, oh my gosh, direct deposit reversals has a change. It was an honorable mention, yeah. In the, in their I'm
Rachel Dauchy: curious to know like what the mechanics are that they're doing now.
Yeah. That, are they just, I, what I'm, I guess what I'm saying is there. Easier, streamlined way to do it. Oh, yeah. And oh, absolutely. You don't have to charge.
Dan DeLong: So there is no fee anymore. You have to, because we think that
Rachel Dauchy: they're just not gonna eat the fee. There's gotta be [00:23:00] like an internal easier way to do it now.
Dan DeLong: Yeah. So I imagine that technology has caught up to, to this, whole process. Yeah. And it's, made it a easy for and easier for a provider like Intuit to actually do the reversal or they are just not they're just bypassing this whole $75 fee type of thing.
And they're eating that cost. I don't know. I don't know the, in the backend of what's, happening here. But, lemme get this thing out of the way here because we've, we wanna be able to read all this stuff. I put the in the know on a blog for us.
Step-by-Step Guide to Direct Deposit Reversals
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Dan DeLong: So it's, it talks about what's, changed, when you should request a reversal, but really the, step by step is you can check the [00:24:00] eligibility and the eligibility has a lot of other.
Prerequisites, right? So the original paycheck, it just ha it hasn't been, it can't be rejected, right? So the situation where somebody fat fingered the, account numbers, that it doesn't apply to a direct deposit reversal because there's nothing to reverse,
Rachel Dauchy: right? It wouldn't have gone through,
Dan DeLong: it wouldn't have gone.
Into the bank account. If yes, the funds will be returned to the bank account automatically. No, no reversal needed. So you don't need to do that. And then confirm you're within the allowed window. So this is, this is part of those NACHA rules is that it has to be done timely, right?
You cannot reverse a direct deposit from a month ago. Yeah. So the, that, that ship has sailed, right? So it has to be the third to the fifth business [00:25:00] day after the pay date. So you have a very small window. Yeah. To, actually be eligible to do this. All right, and then you just initiate the reversal.
Within QuickBooks, you go to the paycheck list In, QuickBooks online, you select the direct deposit. You need to reverse choose. The reason is, duplicate. There's the wrong amount. Wrong account, so on and so forth, and you submit your request. And then you can do the process mult for multiple revver reversals at once if, it's necessary.
If you really screwed up your payroll run, you can submit that. And then unfortunately, the last step is to wait.
Rachel Dauchy: Wait and monitor,
Dan DeLong: right? Because it can take seven to 10 business days for that reversal to complete because the process of the money coming back is that whole. Telephone chain of, all right, we're bringing the money back.
We're pulling the money out. Did you get it? [00:26:00] Yes. No. Okay. Then move to the next step so that, that's why it takes longer. I always used to tell people, it's refunds and reversals is like salmon swimming upstream. It's just. Exponentially harder to take money Yeah. Than it's to give money, right?
So if it doesn't come back in seven to 10 business days then you would have to, if it comes back, great, you just, it, you void the paycheck in QuickBooks. If you use the contractor payments, you would be able to avoid that. If not, if the reversal fails, if you don't see the funds, then don't void the paycheck.
Instead, you work directly with the employee or the contractor to recover the funds and then void the check once you have the money back. So if and another important [00:27:00] caution, the burden of proof is on the business, not the employee. So the employee or contractor, they can dispute that reversal for up to 60 days after the reversal occurs.
So that's why there is that fee I think probably to dissuade people from trying to do this because the burden of proof is is not on the employee. The employee can just say for whatever reason. Oh yeah. That was my money, right? Yeah. What are you doing? Taking that back? And then they'll side on the employees or the contractor side and void the reversal, right?
But if you're unable to request a reversal within QuickBooks, you can still use the external reversal form, but that fit $75 fee still applies. Huh. All of that to say there is a process and you avoid the fee, but there's a [00:28:00] lot of Yeah. Buts when it comes to, yep. There's a
Rachel Dauchy: small window and it they the employee could say no, and it's not a foolproof way to do it.
Dan DeLong: Yeah, there is no such thing as a, foolproof, process. But from the outsider looking in and saying there's all these instant ways of money movement and into it is just making money on the float and all that stuff. That's, not what they're trying to do here.
They're just abiding bond,
The rules that they are like the PCI compliance stuff and then the natural rules, they really govern into its decisions when it comes to real money movement. More so than, Hey, how do I make a buck off of the.
Rachel Dauchy: The long the older, [00:29:00] longer way to do it.
It makes perfect sense to me and it's the least risky way to do it when you're fronting checks the same time that you're collecting the funds as, manager or CEO or something. That makes me nervous. I wouldn't wanna do that.
Dan DeLong: Yeah. And that's why that's why now you can understand that when you for bill.com or anything QuickBooks wise meo, when they say, would you like it instantaneously for a, small fee of 1%?
Yeah. Because they are now definitely taking on that risk.
Rachel Dauchy: Yeah. Makes perfect sense.
Dan DeLong: That, that's why they, charge these things is because. They want to recoup their losses or not necessarily need to recoup their losses if there is a problem [00:30:00] on the, receiving side of the fund.
Rachel Dauchy: Yeah. Yeah. And really understanding the ins and outs of that kind of thing. It, it, for me, it makes perfect sense. Like I know a lot of people like to say it's just a greedy corporation, but yeah, you really have to understand the mechanics of what's happening.
Dan DeLong: Yes. And, as we'll talk about when we when we get into some of the, payroll, the new, payroll updates, there are there are ways to shoot I, completely forgot my chain of thought, but the
Rachel Dauchy: Payroll updates.
Dan DeLong: Oh,
there is something new coming that you're I saw some emails floating around and, some posts where you're not gonna be able to lo opt out of filing and paying taxes. Oh, because now you can.
Rachel Dauchy: Yeah. Oh, you know what, [00:31:00] wait, you didn't mention before we have to initiate a reversal is there a way to cancel payroll?
Do you have. That ability. Or once you've submitted payroll, that's it. Yeah.
Dan DeLong: As long as it hasn't gone to the point of initiating the transfer. Oh, okay. So elite payroll they do their money movement. On the same day.
So if you've created the paychecks on Monday for a, paycheck date on Friday, you have essentially up until Friday morning.
Friday am very early wee hours of the morning, whatever time that is 2:00 AM Pacific time, or Eastern Time or. Whatever that boils down to until the time when they actually start the money movement process. You can do whatever you want to the paychecks. You can cancel them, cancel void them, do whatever you want, as long as that money movement hasn't occurred.
Rachel Dauchy: Okay. [00:32:00]
Dan DeLong: Once that initiation has taken place which, elite and I'm sorry. Core is typically a one day or two day right. So that, would be like the Wednesday at 5:00 PM Pacific time. Is your cutoff time to actually do something for the paychecks before the money movement has actually occurred?
Rachel Dauchy: Correct. And do you know if it says that in the payroll module, will it say you have until next time to cancel this payroll? 'cause it does Augusta, that's why I'm asking.
Dan DeLong: Yeah, I don't, I'm not sure if it actually lists that as an alert. But if you try to do something and it's crossed that threshold, it'll tell you why.
Oh, okay. You can't, because I have some clients
Rachel Dauchy: that cancel their payroll all the time. I'm like, whatcha doing? People
Dan DeLong: plan with your employees money?
Rachel Dauchy: What? You made a mistake again anyway. [00:33:00]
Dan DeLong: That's the, yeah, and that's the importance of, knowing making sure that everything is in alignment with Yeah.
Rachel Dauchy: That's why I'm saying know before you
Dan DeLong: actually submit it.
Rachel Dauchy: Yeah. I know there's just always changes with payroll. It's just why it's my least favorite thing. And it always will.
Dan DeLong: And you pray that there's no payroll. Delay in that direct deposit funding movement, which which has occurred.
Upcoming Events and Conclusion
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Dan DeLong: All right next week we are gonna have we have a live replay being scheduled. Rachel and I are gonna be in Las Vegas. Yay. Doing the, Intuit Connect, thing. And so we're just gonna have a replay of one of our more popular workshops. So you, those of you that are not going to Intuit Connect and you still [00:34:00] wanna be participating in the workshop, we do have a live replay.
It will, appear as if we're live, but it's actually a replay, a recording replay. You can still chat and then do things with us comments and those types of things. It will be as if we're there, but we're not.
Rachel Dauchy: Yeah. And right. We'll be getting the most cutting edge updates from hopefully the CEO of Intuit.
Dan DeLong: Look forward to that. And then we'll start our series with Shauna on the workshops series where we'll be going through the, job costing fundamental Yes. We will be all of November and December, right up until Christmas. So look forward to that and we'll see you next time on the workshop one day.
And hope you all have a great day, and Halloween coming be [00:35:00] spooky and all that stuff. And we'll see you next time on the workshop Wednesday. Bye now.
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