Payday is important to everyone for obvious reasons, but for many small businesses, it can be difficult to manage the daily ins and outs when there are so many other pressing issues that come up when running a business. That's why many small business owners use third party companies to handle their payroll and direct deposit services for their employees. It's a slightly convoluted system that generally works - but only if the payroll company remains in business.
Last week, a New York-based payroll company, MyPayrollHR, ceased all operations after a direct deposit company they worked with, Cachet Financial Services, said the company submitted a digital file that diverted up to $26 million in paychecks headed for small business employees to a bank account it controlled.
According to a message posted by KrebsonSecurity, MyPayrollHR sent a message to clients that read in part, that "we are no longer able to process any further payroll transactions."
The error was compounded for some employees who said they not only missed out on their scheduled paycheck, the bank withdrew their normal pay from their accounts twice. That was the result of a technical error that has since been corrected, Cachet general counsel Wendy Slavkin told NBC News.
"The FBI is seeking information from business owners who may have suffered financial loss due to the alleged activity of MyPayrollHR and its affiliates," the FBI Albany office tweeted.
About 4,000 business that used MyPayrollHR were affected by the error.
Most companies don't cut paychecks directly to employees. The process generally works by having the payroll company send a digital file that documents deposits made by their clients and showed how much each employee should receive. Those funds move from the employer accounts and deposited into a holding account maintained by Cachet. Then, Cachet would in turn deposit the correct amount to each employee's bank account.
However, on Sept. 4, MyPayrollHR submitted a digital file that moved all of the employer funds into an account held at Pioneer Savings Bank, controlled by MyPayrollHR. When Cachet moved to reverse the transaction, they improperly formatted the requests, resulting in many employees having a month's wages withdrawn from their accounts. Cachet says it's working with employees' banks to correct the improper withdrawals and say they will cover the paychecks until they can recover funds from Pioneer Bank or MyPayrollHR.
The FBI and New York's Department of Financial Services have opened an investigation into the company's "sudden and disturbing shutdown."