[New York] Shock closure of MyPayrollHR as pay cheques worth $26million vanish

Pay cheques with a value of around $26million have disappeared from the personal bank accounts of thousands of US workers across the country in the wake of MyPayrollHR’s sudden closure, Daily Mail Online reports.

The abrupt closure followed reports from workers that recent pay cheques had been withdrawn from their accounts after they had been paid. The FBI is now investigating the Clifton Park-based payroll provider.

Some workers were left with negative bank balances after their original pay cheque amount was deducted up to three times. The workers are now accruing account fees and penalties as rents and other payments are withdrawn.

As yet it is unclear where the deducted money has gone and exactly how many workers have had funds taken from their accounts. The total of deducted pay cheques is at present believed to be $26 million. But the total losses, including taxes, are now estimated to be roughly $35million.

Around 4,000 companies across the country are understood to have been affected. To date, MyPayrollHR refuses to comment on the scandal.

The FBI confirmed its investigation on Wednesday and said it was looking for information from any business owners who have suffered financial losses due to MyPayrollHR's activity.

Andrew Cuomo - the New York Governor - has vowed to take action, saying, “The company's reckless actions have left employees across the state with negative bank accounts. They deserve answers.”

In common with many companies, MyPayrollHR uses a third-party payroll processor to pay workers. In this case, California-based automated clearing house Cachet Financial Services.

The issues with MyPayrollHR began last month when they instructed Cachet Financial Services to withdraw about $26 million from employers. The figure was then supposed to be put into a holding account.

Wendy Slavkin - Cachet's general counsel - spoke with TechTarget and told them that the move to the holding account did not happen because MyPayrollHR had managed to manipulate the account numbers (link via original reporting). Cachet Financial Services says it is a victim of fraud in the MyPayrollHR scandal.

Ms Slavkin said, “MyPayrollHR manipulated the account numbers in that electronic file so that the money was taken out of the employer's account and put into an account controlled by MyPayrollHR, not a Cachet settlement account, as it should've been.”

When the clearing house tried to automatically access the MyPayrollHR accounts it was returned as frozen. Yet the money had already been taken out of Cachet's holding account and given to employees as their pay cheques.

“Now all of a sudden Cachet is out $26 million because it's effectively made the payroll for all these companies,” Ms Slavkin said.

Operating by their standard protocol, Cachet said they immediately started withdrawing the amounts already distributed to employees to reclaim their money. The accounts of some employees suffered double withdrawals because their banks didn't reject the reversal.

Ultimately Cachet put out an alert telling banks to reject all reversals so employees could be paid. The company has been working with MyPayrollHR for around 12 years. It has since been in contact with the FBI.

“The employees will have their pay back, but in a sense, they've been paid by Cachet and not their employer,' Ms Slavkin said. 'We just have to see how this plays out and how effective the FBI can be in helping us recoup our money.”
Cachet claims it is $26million out of pocket now but that the loss could total $35million when including tax not paid by MyPayrollHR. Cachet said they were confident it was an isolated event caused by the single payroll provider, after conducting an internal review.

Many employees continue to work with their banks to have account balances restored and retrieve missing money. DailyPay - a financial tech company - has created a relief fund for employees hit with additional fees from negative bank balances. Those affected can contact paythepeople@dailypay.com for information on how to apply (link via Daily Mail Online).