Deposit reversals strand hundreds
Payroll processing firm shut down unexpectedly
Hundreds of South Florida employees — along with workers across the United States — faced the horrible discovery last week that their electronically deposited paychecks had been electronically removed from their bank accounts.
The workers were left financially stranded after a third-party payroll processing company contracted by their employers — Clifton Park, N.Y.-based MyPayrollHR — shut down unexpectedly before transferring funds from their employers into an account controlled by another vendor responsible for disbursing the pay.
That vendor, Cachet Financial Services, a privately held company based in Santa Ana, Calif., said it initiated the direct deposit reversals to recoup $26
million its systems automatically sent to thousands of employees despite never receiving it from MyPayrollHR.
On Tuesday, an attorney for the vendor said it would ask all of the employees’ banks to return all pay that was withdrawn.
In a short news release last week, New York Gov. Andrew Cuomo called for his state’s Department of Financial Services to investigate MyPayrollHR’s “irresponsible” actions.
“The sudden and unexplained shutdown of MyPayrollHR in Clifton Park is disturbing and completely unacceptable,” Cuomo’s statement said. "Its reckless actions have left employees across the state and the nation with negative bank accounts and forced businesses who depend on its payroll services to scramble to find ways to compensate their employees.
The Albany (N.Y.) Times Union, which covers the region that includes Clifton Park, reported over the weekend that employees of MyPayrollHR were among those whose accounts were debited. The website quoted the superintendent of the state’s Department of Financial Service as confirming that an investigation into the company was underway.
MyPayrollHR had 4,000 business clients, the Times Union reported.
The owner of one of those businesses, Miami Lakes-based staffing company Affinity Employment, said up to 300 of his South Florida workers reported losing at least a week’s worth of pay to the reverse deposit.
Brad Mete, Affinity’s president and co-founder, said his company decided to reimburse the employees for a week of the lost pay to ensure they could keep their heads above water.
Mete said he became aware of the problem Thursday, when employees overseen by the staffing company began reporting withdrawals of their Aug. 30 pay from their checking accounts. Affinity officials tried calling MyPayrollHR, but that company was unresponsive, Mete said.
On Friday, Affinity’s employees started reporting that a second week’s worth of pay had been withdrawn from their accounts, Mete said.
Employees assigned to about 70 South Florida companies were affected, he said. They range from assembly workers making $9 an hour in manufacturing plants, to $10-an-hour janitors, to warehouse workers making $15, as well as information technology and health care workers earning higher wages, he said,
“These are people living paycheck to paycheck, whose rents were due Sept. 1,” he said. “This is a horror story.”
Mete is advising the employees to ask their banks to reverse the withdrawals, and some have, he said.
Cachet Financial Services, the company that initiated the withdrawals, on Monday said it only wants banks to reverse one of the withdrawals and only for employees who lost money twice.
In an interview on Monday, Cachet’s attorney Wendy Slavkin said the company feels bad about the employees’ predicaments, but that Cachet shouldn’t be held responsible for paying them. “That money never belonged to those employees,” she said. But on Tuesday, Slavkin said Cachet had decided to ask all banks to ensure all affected employees would get their money back. “Either they’ve received it or will receive it," she said.
Cachet will pursue the money from MyPayrollHR after it asks investigators and the court to help figure out where it went, she said.
Normally, MyPayrollHR would be responsible for collecting money from the employers and depositing that money into a holding account overseen by Cachet, Slavkin said.
Cachet, because it is authorized to conduct bankto-bank transactions under federal rules, would then move the money from the holding account into each employees’ checking accounts.
“All of this is done by computer,” Slavkin said.
But in this case, Cachet distributed the paychecks after someone apparently manipulated the computer program to divert it away from the holding account controlled by Cachet and into a mystery account, Slavkin said.
When Cachet discovered its account had been debited $26 million and there was no deposit from MyPayrollHR, it tried to take back the $26 million by sending a specific reversal code to all of the employees’ banks, she said.
But someone wrote the reversal code incorrectly, Slavkin said, prompting Cachet to resend the reversal order using the correct code. “The banks should have rejected the [first] incorrect reversal code,” she said, but some didn’t and allowed both the first and second reversal orders to withdraw money from the employees’ accounts, resulting in debits of two weeks of pay.
Many employees who go to their banks to dispute the withdrawals are succeeding in getting the deposit reversals reversed, Slavkin said.
Others, according to Mete, are running into resistance. Some banks are reversing one but not both of the withdrawals, he added.
As of Tuesday night, 1,953 people joined a Facebook group, Victims of MyPayrollHR and CachetFS, to share support and tips on how to dispute the reversals at their banks.
Slavkin said Cachet has insurance but not enough to cover a $26 million loss. Cachet officials have asked MyPayrollHR’s bank to freeze its accounts but that hasn’t happened yet.
MyPayrollHR’s CEO, Michael Mann, is no longer returning phone calls from Cachet, despite 12 years of doing business together.
The voicemail system at MyPayrollHR on Tuesday said no one was available to take calls and to try back later.