Failed Funding Guide
Resolve payroll funding failures quickly to maintain employee trust and compliance.
Overview
In some cases, the payment from the employer to fund a payroll fails. This can occur for many reasons, most commonly:
- The employer’s bank account does not have enough funds to cover payroll (i.e., Non-Sufficient Funds or NSF)
- The employer’s bank account is not set up to allow outgoing debits
- The employer provides incorrect bank account details
Failed fundings have a severe impact on employee experience, and cause administrative and compliance challenges. As such, Check takes immediate actions to limit risk and ensure the failed funding is resolved, including:
Zendesk communication | When a payroll debit fails, Check notifies the Partner immediately with a Zendesk ticket. |
Held direct deposit payments | Any employee and/or contractor direct deposits which have not yet been processed will be held until the debit failure is resolved.
For three-day payrolls, this means that no direct deposits will be sent.
For two-day and next-day payrolls, some direct deposits may have already been sent before the debit failure occurred, while others will be held. |
Held tax payments | Tax payments are held and not paid to tax agencies, which may result in late payments, penalties, and/or tax liens. |
Downgrade, waiting period, and/or termination | Check may downgrade a company to standard processing, implement a waiting period, or terminate them from the platform as a result of a failed funding. For more details, refer to link. |
Failed funding fee | To cover bank fees and administrative overhead, a fee of $100 is assessed per employer debit failure, or NSF (Non-Sufficient Funds). |
Payroll approval blocked | The employer will be unable to approve any additional payrolls until their failed funding is resolved and they return to good standing. This is represented with the in_good_standing property on the company in the API (documentation). |
Blocked processing of other approved payrolls | Note: This applies to Standard Risk Tier partners only. See link for more information.
While a company has an outstanding NSF, Check takes steps to ensure that no additional credit risk is assumed for that company. This means that no debits or credits will be sent for accelerated processing payrolls while a company has an outstanding NSF.
If the debit or credits for a payrolls is not processed per this policy, then that payroll will moved to a failed status. However, it will not generate a new failed funding strike for the company (see link for more information about failed funding strikes).
This will occur at the following times for each payroll:
- 11am ET on the day of the payroll’s approval deadline (which is when the debit for the payroll would begin to be processed), or
- 5pm ET the banking day before the payroll’s payday (which is when the credits for the payroll would begin to be processed), in the rare case that the NSF occurred after the payroll’s debit had already been sent, but before credits were sent.
This policy does not apply to payrolls that are funded by wire or using a three-day processing period.
If the company resolves their failed funding before these times, then the payroll will not be affected and will continue processing as usual. |
Resolving a Failed Funding
Check encourages employers to resolve failed fundings via wire. Wires settle more quickly than ACH and reduce the risk of delayed payments.
In cases where the employer doesn't want to send a wire, partners can manually retry the debit via ACH. However, when resolving failed fundings via ACH, direct deposit payments will continue to be held until after the 2 day return window for the ACH transaction closes, meaning that those payments are likely not to be made on the original payday for the payroll.
See Managing transactions for instructions on how to resolve a failed funding via wire or ACH from Console.
When the employer resolves the failed debit, Check will:
- Reinstate the employer to good standing
- Allow the employer to run future payrolls
- Release any incomplete direct deposit payments
- Release any tax payments
If any payrolls were blocked as a result of this failed funding (see Blocked processing of other approved payrolls in the table above), then the debit and/or the credits for those payrolls will need to be manually retried in Console.
Collections
When funding failure occurs on accelerated payrolls (next-day or two-day payroll), Check will initiate collections efforts to recoup funds paid out to Employees. Collections efforts take the form of:
- Automated debit retries
- Direct outreach
Automated retries
Check will automatically retry failed Employer debits 5 and 10 business days after the initial failure date. The retry runs at 8pm ET. Check will retry failed debits a total of two times. Check will not automatically retry if a manual retry or wire funding is already in progress.
For example, if a payment fails on a Monday, Check will run the automatic retry on the following Monday at 8pm.
Retry failures will not be counted towards termination count, and customers will not be charged a fee if an automated retry fails. Only failed fundings with R01 (insufficient funds) and R09 (uncollected funds) return codes will be automatically retried.
Direct outreach
At Check, we understand that failed fundings will occur for a variety of reasons. In the event that employers fail to repay a failed funding after outreach from you, the following are the practices that Check engages in to recoup the funds and avoid a permanent loss:
Our Collections Specialist will reach out to employers after an accelerated payroll remains unpaid for 10 days. If the credit loss is over $10,000, our outreach will begin after 5 days. We will send an email to the employer highlighting the amount owed, whether employee direct deposits or tax filings have been paid and the consequences for the return (platform termination, late filing fees, legal escalation). We will also call the employer directly if we do not receive a response via email and will continue regular reminders as needed. In these conversations, we do notify the employer that Check is your payroll partner.
If contact is made with the employer, we work with them to understand why the payroll failed and provide them with repayment options (wire instructions, re-debit or a payment plan if necessary). If an employer opts for a payment plan, we will require a debit authorization and a signed agreement outlining the payment plan terms and timeline.
Our team addresses each debit return professionally and respectfully in order to resolve the failed debit. Our Collections Specialist takes the time to speak with the employer to understand why the debit returned and provides clear instructions for a resolution.
If we are unsuccessful in collecting the funds, the account may be escalated to our Legal Team for review. If necessary, the accounts will be sent to our outside counsel for further escalation. Our Collections Specialist will attempt to inform the employer prior to escalating in an effort to resolve the matter mutually. At Check’s discretion, failed payrolls may be escalated earlier than 60 days for high balances or if no contact or resolution has been made.
At Check's discretion, Check may escalate outstanding debits to our legal team for additional outreach and potential legal action if deemed necessary.
Marking Items as Manually Paid
In some cases, after experiencing an NSF, employers choose to pay their employees and/or contractors manually via paper check to ensure that they are paid on payday. In these cases, you should ensure the respective payroll items and/or contractor payments are marked as paid manually, which can be done from Console with the instructions below, or over API by editing the payroll items and contractor payments.
Ensure that all necessary items are updated to manually paid before retrying the debit for the payroll, to ensure that the debit is only for the necessary amount.
How to mark payroll items as manually paid in Console:
- Navigate to the payroll in Console. You can do this either by searching the payroll ID in the search bar in the upper left, or by navigating to the Payrolls tab for the company and selecting the payroll.
- Select the “…” menu in the upper right, and choose the option to “Mark payments as manual”.
Note: This action can only be taken on payrolls in a failed status. If the payroll is still in draft, you can update payments to manual by selecting “Edit payroll” instead.
- Select the payroll items and/or contractor payments that you would like to mark as manually paid, and then click “Review items” in the upper right.
- Review the changes, and then continue.
- Retry the payment via wire (recommended) or via ACH. This will trigger a new debit for the updated cash requirement amount, recalculated to exclude the payments that you have marked as manually paid. If you do not with to retry the payment immediately, you can click “Cancel” and retry later from the debit transaction (see Managing transactions).
Last updated on January 31, 2025