When Does an ACH Payment Need to Say “PAYROLL”?
If your business sends ACH payments, you may have heard about a Nacha rule that requires the word “PAYROLL” to appear in certain payment descriptions.
That’s true — but only in specific situations.
We’ve seen some understandable confusion around when this rule applies and when it doesn’t. So let’s slow it down, strip away the jargon, and walk through what Nacha actually requires — and what it doesn’t.
What is the Nacha PAYROLL rule?
Nacha imposed this new rule in March 2026 to increase fraud prevention and decrease payment confusion. The word “PAYROLL” is now required in the Company Entry Description only when all of the following are true:
The ACH entry uses the PPD SEC code
The payment represents wages, salaries, or similar compensation
The payment is made to an individual (an employee or consumer)
If any one of those things is not true, the “PAYROLL” requirement does not apply.
What is the Company Entry Description?
The Company Entry Description is a short line of text included in an ACH transaction. It helps the person or business receiving the payment understand what the deposit is for when it shows up on their bank statement.
Common examples include:
PAYROLL
RENT
VENDORPAY
REIMBURSE
Nacha sets rules around this field to promote transparency and reduce fraud. One of those rules now requires a specific description — “PAYROLL” — in a very specific scenario.
What is an SEC code?
An SEC code (short for Standard Entry Class) is a three‑letter code used in the ACH network to describe what kind of payment is being made and who is being paid.
Think of the SEC code as the label that tells banks and payment systems how to process the transaction. It identifies whether a payment is going to an individual or a business — and that distinction matters for compliance.
Two of the most common SEC codes are:
PPD — used for ACH payments to individuals, such as employee payroll
CCD — used for business‑to‑business ACH payments, like vendor or service payments
Nacha rules, including Company Entry Description requirements, are often tied to the SEC code. That’s why using the correct SEC code is just as important as the payment description itself.
Why SEC codes matter: PPD vs. CCD
A lot of the confusion comes from mixing up two common ACH SEC codes. The key question to ask is simple: Who is being paid — an individual or a business?
PPD (Prearranged Payment and Deposit)
Used for payments to individuals
Common for employee payroll and other consumer credits
This is the only SEC code where the “PAYROLL” description requirement applies
CCD (Corporate Credit or Debit)
Used for business-to-business payments
Common for vendor payments, service fees, and reimbursements paid to a business entity
The “PAYROLL” description requirement does not apply
Who is responsible for getting it right?
Under Nacha rules, the compliance obligation follows the originator of the PPD credit — the business that is paying the individual. That’s why it’s important to:
Use the correct SEC code
Apply the “PAYROLL” description only when required
Avoid over-labeling business-to-business payments
Using the wrong description can create confusion for recipients and raise unnecessary questions during reviews.
The bottom line: Not every ACH credit needs to say “PAYROLL.”
That requirement applies only to PPD credits paying wages or similar compensation to an individual. Business-to-business ACH payments using CCD entries are not subject to this rule.
When you understand the “why” behind the rule, compliance becomes a lot less stressful.
And if you’re ever unsure which SEC code or description is right for your ACH payments, your First Bank treasury management team is here to help — with clear answers, not guesswork.
Test your knowledge
Receiver: Individual employee
Receiver: Business entity
Receiver: Business entity
Use the dropdown to see common examples of when PAYROLL is required and not required in the Company Entry Description
