Running payroll over ACH means originating one credit (push) entry per employee. The employer hands a batch to its bank, the ODFI, which submits it to an ACH operator that routes each entry to the right receiving bank. The employer commonly funds the run ahead of an effective date so the money is ready to settle, and because entries are submitted early, many employees see direct deposit land the night before payday. Settlement is on the scheduled date, typically a day or two after submission.
The flow at a glance
Who’s involved
- Employer
- The originator who builds the payroll batch and sets the effective (pay) date
- ODFI (employer's bank)
- Originates the ACH credit entries and submits the batch to an operator
- ACH operator
- FedACH or EPN, which sorts and routes the entries to each employee's bank and computes net positions
- RDFI (employee's bank)
- Receives each credit and posts it to the employee's account
- Employee
- The receiver whose account is credited on payday
How it moves, step by step
- 1messageEmployer
The employer (often via a payroll provider) builds a batch of ACH credit entries, one per employee, and sets an effective date: the payday the money should land.
- 2moneyEmployer
The employer commonly funds the run ahead of time, so the cash backing the credits is in place before the effective date. Exact prefunding rules vary by bank and payroll provider.
- 3messageODFI
The employer's bank, the ODFI, originates the batch and submits it to an ACH operator, typically a day or two before the effective date. This is a records hand-off, not money moving.
- 4messageACH operator
The ACH operator sorts the batch and routes each credit entry to the correct employee's bank. It carries instructions and computes the net positions banks owe each other; it does not push the actual cash.
- 5messageRDFI
Each employee's bank, the RDFI, receives its entries ahead of the effective date and can see the incoming credits. Many banks make funds available the evening before payday, which is why direct deposit often shows up the night before.
- 6moneyODFI and RDFI
On the effective settlement date, the banks settle their net positions through the Federal Reserve. This bank-to-bank movement is when the funds actually shift and become final; the operator computes the net amounts, but the money moves between the banks.
- 7moneyRDFI
The RDFI posts each credit to the employee's account, completing the deposit.
- 8exceptionRDFI
If an account is closed or details are wrong, the RDFI returns the entry to the ODFI, and the employer reissues the payment. Some returns can arrive after the deposit appears to have landed.
When it’s final
Batch, on a scheduled effective date, commonly a business day or two from submission with same-day ACH available for some runs. Funds typically settle on payday, but many employees see the deposit the prior evening because the receiving bank already holds the entry and chooses to make it available early. Exact timing varies by bank and program.
Common misconceptions
Myth: Direct deposit landing the night before means I got paid early.
Reality: Settlement still happens on the effective date. The receiving bank already has the entry and chooses to make the funds available early as a courtesy; the actual bank-to-bank money movement occurs on payday, not when the balance first appears.
Myth: The ACH network sends each employee their wages.
Reality: The network routes the instructions and computes what banks owe each other. The employer's bank pushes the funds and the employee's bank posts them; settlement of the real money happens between the banks through the Federal Reserve.
See it in the studio
Terms in this guide
Sources
- Direct Deposit via ACH and the ACH Network Rules ↗ · Nacha. Defines ACH credit origination, effective dates, and direct deposit mechanics.
- FedACH Services and same-day ACH ↗ · Federal Reserve Financial Services (operator). Operator detail on routing and settlement timing for ACH batches.
- ACH settlement through Reserve accounts ↗ · Federal Reserve. Background on interbank settlement that finalizes payroll funds.
Educational, plain-English explainers. Not legal, compliance, tax, or financial advice. These cover fundamentals, not current fees, limits, or rates (which change). Rails and parties vary by program and country, so verify specifics against primary sources. Last reviewed June 2026.