ACH Payroll Requirement
As of March 20, 2026, the National Automated Clearing House Association (NACHA) is implementing a rule affecting certain ACH transactions made by businesses. Under this requirement, any ACH transaction used to pay an individual for compensation—including wages, salaries, bonuses, commissions, and 1099 contractor payments—must begin with the word “PAYROLL” (in all caps) in the Company Entry Description field. If your business uses ACH transitions to pay individuals, please carefully review the information below.
What is NACHA?
NACHA is the National Automated Clearing House Association and it governs ACH payments in the United States.
Who Is Affected?
This rule applies to all business customers who use ACH to pay individuals for any form of compensation.
What You Need to Do
If You Use North State Bank’s ACH Payroll Feature
You’re all set. Our system automatically inserts PAYROLL in the Company Entry Description after you approve your payroll file. No additional action is required.
If You Use ACH Credit with the PPD SEC Code
You are responsible for adding PAYROLL (in all caps) at the beginning of the Company Entry Description field for any compensation-related payment.
When the Payment Is Not for Compensation
Some payments to individuals are not considered compensation—for example, reimbursements, refunds, or one-time non-work-related payments.
For non-compensation payments:
- Do not use the ACH Payroll feature.
- Send the payment using the PPD SEC code.
- Use the optional Company Entry Description to note the purpose of the payment.
Why This Requirement Was Implemented
NACHA introduced this rule as part of a broader risk‑management initiative designed to:
- Strengthen fraud prevention across the ACH network
- Improve identification and categorization of compensation-related transactions
- Enhance the likelihood of recovering funds in the event of fraud
Using a standard term (“PAYROLL”) helps financial institutions monitor and protect ACH activity more effectively.
How North State Bank Supports the Requirement
To help businesses remain compliant:
- ACH Payroll users: “PAYROLL” is automatically added to each file.
- ACH Credit (PPD) users: You must enter “PAYROLL” manually when making compensation payments.
If you’re unsure which method you currently use, your North State banker can guide you.
Do You Need the ACH Payroll Feature?
It depends on your operations. Your North State banker can help you determine whether adding the payroll feature would simplify your process or strengthen your ACH practices.
Questions?
We’re here to help. Contact your North State banker with any questions. If your situation requires additional expertise, they will connect with our Cash Management team to ensure you receive the right guidance.