Recently a member asked:
Can I please get clarification on the Company Entry Description PAYROLL - “for wages, salaries, or similar types of compensation.” Do similar types of compensation include expense reimbursements, cell phone or car allotment, etc.?
This is a good question, and it’s one where both interpretations can be correct, depending on facts and circumstances.
Under the Nacha Operating Rules, the Company Entry Description reflects the purpose of the credit. For PPD credits, “PAYROLL” is required when the Entry is for wages, salaries, or similar types of compensation. The descriptor is descriptive only and does not represent employment status.
Reimbursements do not fit neatly into a single category. Some reimbursements function as compensation (for example, stipends or allowances paid routinely or bundled with wages), whilst others are true expense repayments tied to substantiated out-of-pocket costs.
Because of that:
- Reimbursements that function as compensation may appropriately use PAYROLL.
- Reimbursements that are strictly expense repayments generally should not use PAYROLL.
The Rules do not prohibit either approach. The correct treatment depends on the Originator’s (employer's) and Receiver’s (employee's) facts and circumstances, including how the payment is structured, paid, and understood by the Receiver and their RDFI.
Processor guidance suggesting exclusion of reimbursements can be helpful as a general rule of thumb, but it is not a Nacha requirement. Ultimately, the ODFI may permit or restrict the use of PAYROLL based on the nature of the reimbursement and the Originator’s payment practices, provided the approach is applied consistently and aligns with the purpose of the credit.
In short: there is not a single "right" answer for all reimbursements - only a right answer for a given use case.
I base this information on my reading of Chapter 47 of the Nacha Operating Guidelines and the text under the heading, "Formatting Requirements." Here I read the PAYROLL description in the Company Entry Description is intended to assist RDFIs with their monitoring practices and procedures. The 2026 requirement is about pattern recognition and fraud mitigation, not payroll semantics.
RDFIs are using PAYROLL to:
- Identify new or redirected compensation streams
- Tune availability decisions
- Detect anomalous “first payroll” events
Mislabeling expense reimbursements as PAYROLL creates noise. Failing to label compensation as PAYROLL creates blind spots.
My guidance for your Originators:
- Use PAYROLL when the credit represents compensation for services rendered, including stipends and allowance-type reimbursements.
- Do not use PAYROLL for true expense reimbursements that repay out-of-pocket costs.