What is BACS? – An Overview of the Automated Payment Scheme Unique to the United Kingdom

What is BACS - An Overview of the Automated Payment Scheme Unique to the United Kingdom

By Kira Rubiano

If you are like most US based employers, the acronym “BACS” is completely foreign to you. You’re more likely familiar with the domestic terms used for identifying automated payments. They include Direct Deposit, ACH Credit, or Wire Transfer. If you are preparing to run a payroll in the United Kingdom, then this question has probably come up:

What is BACS?

BACS, or Bacs, is the United Kingdom’s very unique automated payment mechanism.  Bacs Payment Schemes Limited (Bacs), formerly known as Bankers’ Automated Clearing Services, is actually an organization.  This organization isresponsibley for operating the schemes behind the clearing and settlement of two methods of UK automated payments: Direct Debit and Bacs Direct Credit. In short, it is a system for making payments directly from one bank to another. The system is most often used by third parties as an easy means of money transfer within the UK. Payroll providers use it to assist their clients (the employers) in issuing employee and statutory payments from the employer’s local bank account. Bacs Payments allow you to make more than one payment to different beneficiaries in the same payment batch.

Payroll Providers in the UK have to be a Bacs Approved Bureau in order to help facilitate payroll payments from the employer’s local account. A Bacs Approved Bureau is required to pass an initial inspection review and is then inspected annually to maintain their status. The bureau or payroll provider can either create and submit payment files in the Bacs Format for their users or just submit files created by the user themselves. These payment files are often created by software that is separate from the payroll software but utilizes an automated integration to extract required info from the payroll system or a manually-loaded file that has been derived from the payroll software. Bacs payments take 3 working days to clear once a “Bacs Submission” is sent to the bank for execution.

Are there payment options in the UK other than BACS?

For urgent payments that need to be processed in a shorter time frame, there is an option called “CHAPS”. CHAPS originally stood for Clearing House Automated Payment System. It is a same-day automated payment system for processing payments made within the UK.

CHAPS guarantees same-day payment as long as the instructions are received by 2:30 pm GMT on a working day. There is a £25 charge for this service. Most payroll providers cannot issue CHAPS payments from a client/employer’s account. Instead, the employer, themselves, would need to initiate these payments.


Celergo works with only Bacs Approved Bureaus.  We ensure that your payroll needs are managed compliantly in the UK – and everywhere else in the world. If you have any other questions about our global payroll solution or the United Kingdom, don’t hesitate to contact us!

 

**This article is for informational purposes only. It is not intended to constitute legal advice.

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