I get paid semi monthly. Usually I can expect to see my check on the actual payday, with my paystub showing the night before.
I got an email from my bank saying they will start showing deposits three days earlier now.
How does this work if payroll doesn’t pay out until specific days?
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The bank is essentially giving you a very very short term loan, based on either the fact that your company’s payroll has already run and is sitting there with a future pay date, or, they’re confident enough with your pay frequency that they are willing to front it
I was in payroll for almost a decade. Assuming you are asking about direct deposit, when your employer processes their payroll data, they send an ACH (automatic clearing house, I think) file out to all the employee financial institutions that they’ve set up. This is done a day or multiple days in advance of your pay date. This is why it is standard procedure that you get paid for what you worked a week or two ago. So that they can generate this file from older data, not data you created by working yesterday, that may be incorrect and need changing. That file has the deposit breakdown, accounts, amounts, and date of pay release. This data transfer is very rarely ever reversed. The bank sees this file sitting there and, at their preference, will “advance” you that incoming amount.
Direct deposits are sent via ACH, which is one of the most common transfer methods in general. If you’re transferring money between your accounts at different banks, chances are it says it will be available in 3-5 business days. Same is true with paychecks, just the employer’s bank is the originator (ODFI) and yours is the receiver (RDFI). Once an ACH file is sent between banks, it still takes a couple days to process and settle.
Your employer processes payroll several days early to account for the ACH process so the money hits your account on payday. Knowing that payroll is generally reliable, your bank posts the money to your account immediately after receiving the ACH file instead of waiting for it to settle. Basically the bank is giving a mini loan and is relying on the transfer to settle.
This is similar to checks – if you deposit a check your bank will make X amount available immediately, but it still takes several days for the check to clear. (Except check availability is a regulatory thing, direct deposit availability is just business practice)
This is a gimmick feature that does not benefit you. If you normally get paid every other Friday, you are going 14 days between paychecks. If you now start getting those deposits one day early on every other Thursday, you are still going 14 days between paychecks.
Your bank is notified of the incoming deposit before the money actually hits your account. They are giving you access to the money upon notification instead of upon receipt. Thats how you get it early.
poor people, or people bad at budgeting rely on the two day early policy. if two days makes or breaks you…
simply put, employer sends payroll data file to bank (ACH – automated clearing house). bank gets this prior to your actual “pay date”. with said file/information, they give you what most financial institutions would refer to as a “provisional credit” of your money. should that information change for some odd reason, plus or minus, the differences would be reconciled shortly after.
You owe 30 friends money. Five of them are in class with you and 25 of them are in another class but ride the bus home with a good friend of yours in your class. You give that kid the money you owe and tell him that, so it doesn’t appear you paid some people before others, to make sure that he pays everyone at the same time.
He gets on the bus and is sitting near 10 people. 10 more are at the other end of the bus and it looks like 5 aren’t there that day but he knows where they live. Because he’s got the money and those kids are just right there, he goes ahead and pays them and then starts working his way to the other end of the bus. He gets there and pays the other 10. When he gets off the bus, he passes the houses of the remaining 5, knocks on the door, and gives them their money directly.
Banking is the same. Different banks have different access to the fed system and different internal processes established to handle payments. They also have no control when they receive the funds so there will be some variation from time to time or even between banks especially when a 3rd party payroll company is involved.
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