Handling Employee Level Direct Deposit Reversals and Insufficient Funds

Learn what happens if a direct deposit is sent to a fraudulent account, including the steps for attempting a reversal and what to do if the funds cannot be recovered.

Scenario: An employee's direct deposit was sent to a fraudulent account, and you need to recover the funds.

Direct Deposit Reversals Overview

Direct deposit reversals are a process through which funds can be recovered if sent to the wrong account. However, this process has specific conditions and limitations:

• Timing: A reversal must be submitted within 4 business days of the check date. Reversals cannot be processed after this timeframe.
• Attempts: Only one reversal attempt can be made per transaction.

Steps and Outcomes

1. Reversal Submission

   • If a reversal is submitted within the 4-business-day window, the bank will attempt to recover the funds.
   • This process typically takes 1-2 business days to determine whether the recovery is successful.

2. Successful Reversal

   • If the funds are recovered, they will be deposited back into your company’s bank account within 5-7 business days.
   • We will automatically reverse the amounts for tax and reporting purposes to reflect the correction.

3. Unsuccessful Reversal

   • If the reversal fails and the funds cannot be recovered, your company will bear the financial loss unless other recovery steps are successful.

   • At this point, you’ll need to work directly with the employee to recover the money outside of Gusto.

   • The employee may be able to work with their bank to file a dispute or pursue other recovery measures.

1. • 📌 Please Note : We will still reverse the amounts for tax and reporting purposes, so your payroll records reflect that the original transaction was corrected—even if the funds themselves are not recovered.

Important Notes

• Reversals are not guaranteed. There’s a chance that the funds cannot be recovered, leaving you or employee to take the financial loss.
• In such cases, you can decide whether to issue a second payment to the employee while bearing the loss of the original funds.

Recommended Actions

• Act quickly if a fraudulent transaction is identified to increase the chances of a successful reversal.
• Communicate clearly with employees about their responsibility to resolve issues if the funds cannot be recovered.
• Encourage employees to work with their bank if needed to dispute the fraudulent transaction.

If you have additional questions please email us at support@goco.io 💚