NACHA Payroll Indicator Frequently Asked Questions (FAQ)

Jump to:

What's Happening?

• Why am I seeing a payroll question in Bill.com?
• When does this take effect?
• Who is affected by this change?
• What will I need to do differently in Bill.com?

Classifying Payments

• Who decides whether a payment is payroll—Bill.com or my business?
• Does this apply to all payment types I send through Bill.com?
• What counts as a payroll payment under this rule?
• Does this include payments to contractors (1099 workers)?
• Are reimbursements and expense repayments considered payroll?
• What happens if I classify a payment incorrectly?
• Do I have to toggle payroll for every single payment? 

Additional Information

• Will this change how quickly my employees or contractors get their money?
• Can Bill.com process payroll for my employees?
• Where can I learn more about the Nacha rule itself?
• Is there an API for this process?

What's Happening?

Why am I seeing a payroll question in Bill.com?

Nacha (the organization that manages the U.S. ACH Network) has introduced a rule that requires businesses to clearly indicate when an ACH credit is for payroll or similar compensation by using a standardized PAYROLL description in ACH files, effective no later than March 20, 2026.

To comply, we ask you to identify whether certain ACH payments you send are payroll so we can pass the correct information through the ACH Network.

When does this take effect?

Nacha’s rule is effective March 20, 2026.

Who is affected by this change?

This change affects Bill.com customers who use ACH to pay their vendors/suppliers (for example, employees or contractors) in the United States. The rule applies to credits to individuals (consumer bank accounts, NOT business-owned bank accounts) used to pay wages, salaries, and other similar types of compensation through the ACH Network. These rules do not affect credits to business-owned bank accounts.

If you only use Bill.com for things like vendor bill payments (e.g., paying other businesses for goods and services) and do not pay individuals via ACH, no action is necessary. 

What will I need to do differently in Bill.com?

• You will see a payroll indicator when creating certain ePayments on/around March 23, 2026.
• Yes/No payroll choice
• Once you select an option for a given payee in a given workflow, Bill.com will remember your choice as the default for future payments, which you can change if needed when scheduling future payments.

Classifying Payments

Who decides whether a payment is payroll—Bill.com or my business?

You do.

Nacha and other banks cannot automatically “validate” whether a payment is truly payroll; they rely on the information provided by the Originator. Bill.com’s role is to:

• Give you clear options to classify your payment, and
• Correctly pass that classification into the ACH file.

Your business is responsible for deciding whether a given ACH payment is payroll or not payroll based on how you compensate your employees and contractors.

The designation of whether something is Payroll or not does not constitute a representation of employee status, job security, or a contract of employment.

Accounting firms paying bills via ACH on behalf of their clients should confirm with their clients or with the vendor if payments are payroll or not. 

Does this apply to all payment types I send through Bill.com?

No. This Nacha rule specifically applies to ACH credit payments used for payroll and similar compensation, not to every payment type. For example:

• In scope: ACH direct deposits to individuals for wages, salaries, commissions, bonuses, and comparable compensation (including certain contractor and HSA payroll contributions).
• Out of scope:
  
  • Check payments
  • Wire transfers
  • Card-based payments (such as virtual cards)
  • Purely commercial vendor payments that are not compensation to an individual

What counts as a payroll payment under this rule?

Under Nacha’s rule, payroll means wages, salaries, and similar types of compensation that you pay to an individual, consumer-owned bank account through ACH. Payments to business bank accounts are not affected by this Nacha rule change.

Examples that generally should be treated as payroll include:

• Regular salary or hourly wages
• Overtime pay
• Bonuses and commissions
• Other direct compensation for work performed
• Certain payroll-related benefits such as Health Savings Account (HSA) payroll contributions, which Nacha treats as a pre-tax component of salary

Note that the IRS and Nacha have different definitions for what is considered payroll payments.

Does this include payments to contractors (1099 workers)?

Yes. Nacha has clarified that the requirement to use the PAYROLL descriptor applies to all types of compensation payments, including payments to contract employees (1099) and other non‑W2 arrangements, when the payment is compensation for work performed.

If you are paying a contractor for services they provided (e.g., consulting, design, or freelance work) via ACH, that payment may be considered payroll under this rule.

Note that the IRS and Nacha have different definitions for what is considered payroll payments. 

Are reimbursements and expense repayments considered payroll?

Generally, reimbursements (e.g., expense reports, travel reimbursements, out‑of‑pocket purchases you’re paying back) should not be marked as payroll.

In Bill.com, you should:

• Mark Yes only if the payment is compensation for work (wages, salary, bonuses, commissions, similar compensation).
• Mark No for reimbursements, refunds, or other non‑compensation payments.

What happens if I classify a payment incorrectly?

If payments that should be payroll are not labeled as such—or if non‑payroll payments are frequently labeled PAYROLL—Nacha or our bank partners could issue notices of potential violation or other compliance feedback through the ACH Network.

Potential outcomes may include:

• Bill.com reaching out to your organization to correct how you’re classifying payment
• Potential liability for fines or other losses
• In extreme or repeated cases, additional monitoring or restrictions on sending ACH payroll payments through Bill.com

Do I have to toggle payroll for every single payment?

No.  Bill.com will remember your choice as the default for future payments for that vendor. However, you can change if needed when scheduling future payments.

Additional Information

Will this change how quickly my employees or contractors get their money?

The rule is partly intended to help receiving banks (RDFIs) better identify payroll credits and manage funds availability and fraud risk.

Some banks may use the PAYROLL indicator in their own logic for:

• Determining when to make funds available
• Monitoring for suspicious or redirected payroll activity

Any change in deposit timing is determined by the employee’s/contractor’s bank, not by Bill.com. Your responsibility is to correctly indicate when a payment is payroll so the receiving bank receives accurate information.

Can Bill.com process payroll for my employees?

No, Bill.com is not a payroll provider. While we can facilitate the money movement for payments classified as payroll, Bill.com does NOT provide: 

1. Tax Calculations: Bill.com does not account for Social Security, Medicare, Federal/State income tax, or any other payroll related deductions.
2. Tax Filing & Compliance: Bill.com won’t file quarterly Form 941 or pay payroll taxes to the IRS and/or state agencies.
3. Year-End Forms: Bill.com doesn't generate W-2s for employees. 
   Bill.com can help you prepare, file, and manage 1099-NEC and 1099-MISC forms, but that is considered Accounts Payable, not payroll according to the IRS.

Where can I learn more about the Nacha rule itself?

Nacha publishes details about this rule in RISK MANAGEMENT TOPICS – Company Entry Descriptions, which explains the PAYROLL and PURCHASE descriptions, effective March 20, 2026.

Is there an API for this process?

Please refer to the developer release notes.