BSA/AML Compliance for Payroll Providers

Over $8.8 trillion dollars are processed each year for payroll in the United States. The country’s 11,000 tax jurisdictions produce over 25,000 income tax code changes a year. With thousands of tax jurisdictions and various regulatory requirements, staying compliant with tax code updates published only in small print or press releases that fly under the radar can feel impossible.

Beyond considering thousands of changes in tax codes, payroll providers must also comply with the Bank Secrecy Act and its Anti-Money Laundering (AML) regulations. Payroll providers are considered Money Service Businesses (MSBs), which are required to register with the Financial Crimes Enforcement Network (FinCEN) and comply with AML rules and regulations.

Building an AML Compliance Program

An AML Compliance Program is a complex and time-consuming requirement for MSBs to implement. MSBs are regulated by the federal government and have a legal obligation to ensure they are not facilitating money laundering and other illegal activity, such as terrorist financing.  Compliance Officers must set up a comprehensive Compliance Program, with independent risk assessments, transaction monitoring, Suspicious Activity Reports (SARs), and more.

Monitoring customers: KYC + KYB

MSBs are required to identify and validate who their customers are. This entails the collection and validation of personal identifying information as well as additional monitoring of the customer and their activity.

Payroll providers must continuously monitor and screen customers. Both businesses and individuals must be screened to ensure the provider is not providing services to a business or individual sanctioned by the United States. These lists can update frequently and without notice so it’s pertinent that a provider’s entire customer base is rescreened on an ongoing basis. Common names can cause false-positives that a team will need to manually investigate and clear before servicing.  

In addition to watchlist screening, a compliance program entails compiling and analyzing your data to risk score your customers, setting up transaction alerts for unusual activity, and reporting suspicious activity to FinCEN. Hours of engineering, data, and operational resources are needed to not just set this up, but also to maintain and continuously improve upon your program.

Failure to implement proper Know Your Business (KYB) or Know Your Customer (KYC) procedures can result in the loss of good customers, monetary fines, loss of business banking partnerships, and irreversible damage to an MSB’s reputation.

These KYC and KYB compliance requirements can be especially burdensome for businesses with flex workers. Providers need to onboard new employees quickly while staying in compliance with AML regulation so flex workers can take a shift as soon as possible.

Meeting such requirements for most payroll providers can be expensive and cause potential delays. For providers who serve flex workers, or employees who plan to work short-term jobs for a gig at a time, the manual operational load of constant KYC and KYB compliance is unnecessarily burdensome and risky.

At Zeal, our commitment to compliance allows our partners to focus on the work that matters, ensuring their businesses and employees are paid correctly and on time, every time. Our in-house compliance teams and payroll and tax specialists provide complete support once our partners are up and running so they can scale confidently.

To learn more about payroll compliance or how Zeal can help you offer payroll with Zeal, get in touch with our Partnerships team.

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