Hundreds of Vermont employees didn’t receive their pay on time last week after a California company that handles financial transactions, and worked with the Vermont-based payroll provider PayData, delayed direct deposits for days.
PayData, which contracted with the company Cachet Financial Services to deliver direct deposits to its clients, said that Cachet warned it would be late on making payments, affecting about 200 of PayData’s clients. WCAX first reported the delays Friday.
The payments were due on Thursday, but the company didn’t make them until Monday, according to Paul Trahan, PayData’s president.
Trahan said that of those 200 impacted PayData clients, about 80% are located in Vermont. When it became clear that Cachet wouldn’t be making the payments by Friday, PayData spent more than $1 million to cover the paychecks of about 1,000 employees, according to Trahan.
“We did the best we could on Friday to make as many employees of our clients whole as we possibly could,” Trahan said.
Cachet, which did not respond to requests for comment Monday, did not provide details about why it delayed payments. According to multiple media reports, the company told its clients on Oct. 25 that it would no longer carry out payroll transactions.
Trahan said that PayData is considering legal action against the company after last week’s events.
“At the end of the day, it cost trust,” Trahan said. “It has impacted the relationships that we have with our customers.”
Trahan said there are more than 100 payroll companies across the country that contracted with Cachet. However, it’s unclear how many of those companies were affected by the delays.
PayData quickly severed ties with Cachet after it missed last week’s pay deadline, and now uses another financial institution it had been working with, Atlantic Capital Bank, to conduct all of its payroll transactions, Trahan said.
Thom Lauzon, an accountant and the former mayor of Barre, said he heard from nine clients who use PayData and whose employees weren’t paid on time last week.
“It was just real eye opening,” Lauzon said. “I spent a lot of time on the phone and there were clients who said ‘Maybe I should go back to doing my own payroll.’”
Lauzon said there are many facts about Cachet that raise questions.
The company has said it processes about $150 billion in transactions annually, but only advertises a $50 million bond to provide “added protection for client funds.”
Last month, Cachet also filed a lawsuit against a former client MyPayrollHr, alleging the company had stolen $26 million in funds.
“They’re handling $500 million a day, they took a $26 million hit recently, and now people’s payroll deposits are not being initiated,” Lauzon said. “It just gives you an uncomfortable feeling.”
Trahan said PayData diverted some of its business away from Cachet after it reported the alleged fraud in September. He added he hadn’t been concerned about the company’s bonding because the relatively low volume of transactions Cachet processed for PayData.
And Trahan said that before last week, in the 12 years PayData had been working with the company, Cachet never missed a transaction.
Michael Piecak, the commissioner of the Vermont Department of Financial Regulation, said that after briefly looking into Cachet, it appears that they should have been licensed with the state as a money servicer, but were not.
PayData is not licensed with DFR, but Piecak said they would would likely be exempt because they work with third-party financial institutions to deliver payroll.
He said his department will now be conducting a review to make sure large payroll providers in Vermont are properly licensed.
“Of course in having on-time delivery of paychecks is the most important thing a payroll provider can do — that’s obviously critical,” Piecak said in response to the delayed payments last week.
Charity Clark, Attorney General TJ Donovan’s chief of staff, said Monday that her office is looking into the matter. But she said the office would not be able to comment even if it decided to open a formal investigation into the delayed payments.
Lauzon said this incident demonstrates that the state should consider new regulations for companies that carry out payroll transactions.
“We do a lot of things to keep Vermonters and Vermont businesses safe,” Lauzon said. “This is sort of a thing that has flown under the radar and I hope someone is going to take a look at this and say we’ve got to regulate this industry a little bit.”
