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I. PURPOSE

This Operating Procedure sets forth Metro-North policy and procedure regarding a Direct Deposit payroll option.

SCOPE

This Operating Procedure applies to all departments and all employees of the Metro-North Commuter Railroad Company.

DEFINITIONS

A. Direct Deposit – The process in which an employee’s net pay is deposited weekly to a checking or savings account designated by the employee. Funds are made available to the employee by 7:00 AM on the paydate.

B. Prenotification – A test transaction sent via the direct deposit system with no dollar value to verify bank routing and account information.

C. Deposit Advice – A non-negotiable form distributed to participants in lieu of a check which provides the amount credited to their account and all earning and deduction information.

D. Enrollment/Cancellation Form – The form to be initiated by an employee to authorize or to cancel direct deposit.

E. Micro-Cash Register System - Bank of New York (BONY) software used to transmit direct deposit detail via PC from Treasury to BONY.

F. ACH System – The Automatic Clearing House is a nationwide system that processes electronic payments. The system provides paperless transfers of funds initiated by banks for the benefit of both consumers and corporations.

POLICY

A. General Policy Statement – Payroll Direct Deposit has been established to provide a more efficient method for all employees to receive their earned wages.

B. Responsibilities –

1. Employees - Must provide a completed Enrollment/Cancellation form and a voided check or deposit slip for a checking account and bank verified routing information for a savings account.

2. Assistant Director, Personnel Systems – Processes completed Enrollment/cancellation forms and enters relevant direct deposit information into the payroll system; communicated with employees to correct any erroneous bank information.

3. MIS – Generates direct deposit reports and advises; makes available direct deposit file for download to Treasury.

4. Assistant Director, Payroll – Downloads direct deposit file from MIS. Transmits file to BONY after Payroll authorization; processes all post transmission corrections identified by Payroll or created by the Bank’s failure to give proper credit.

C, Administration - The Assistant Director, Treasury is responsible for the administration of this Policy and Procedure.

PROCEDURE

Listed below are activities, responsible persons and actions taken.

A. Enrolling An Employee In The Direct Deposit Program

Employee

1. Completes a Direct Deposit Enrollment/Cancellation Form, attaches voided check or deposit ticket as required, signs form and sends to HRIS for processing.

HRIS

2. Receives form. Enters the employee’s bank account number, two-digit bank code and a savings/checking account designation into the Payroll system.

3. Notifies the Payroll department of all new enrollees before the current payroll closes.

Payroll

4. Adds new enrollees to Payroll Audit report.

Treasury

5. Weekly, on Tuesday (or two days before the paydate) downloads Direct Deposit File from MIS. New enrollees are included in this file as zero dollar transactions for prenoting (testing) of the destination and account numbers supplied by the employee. If the prenote attempt fails, Treasury will be notified by BONY and will provide the information to HRIS.

HRIS

6. The enrollment form information and the prenote detail will be compared. If a keypunch error has occurred the information will be re-entered. If a keypunch error has not occurred but the prenote has failed, the employee will be notified and will be required to contact his/her bank. If the prenote attempt is successful, funds will begin to be transferred to the employee’s account the following week.

B. Weekly Transfer of Funds Into the Direct Deposit System

MIS

1. Each week on Monday evening the weekly Payroll is processed which results in the creation of payroll checks, direct deposit advices and a file of direct deposit participants which includes their net pay and bank routing information.

2. Provides Treasury with the ACH Audit Report for review by 9:00 AM each Tuesday.

Treasury

3. Each Tuesday morning downloads the Direct Deposit file from MIS and notes the transaction and dollar totals.

Payroll

4. Each Tuesday, reviews the Direct Deposit report provided by MIS and provides a Direct Deposit Authorization to Treasury by 11:00 A< which will contain the number of file entries and the file dollar total. This document will be approved by the Assistant Director, Payroll. This document will authorize Treasury to transmit the direct deposit file to BONY.

Treasury

5. The Payroll authorization document will be compared to the file contents previously downloaded from MIS. If the contents are consistent with the authorization, the file will be transmitted to BONY via the Micro Cash Register System. This transfer must be executed by 12:00 noon two days prior to the paydate.

6. After the file has been transmitted, a transmission reference number will be provided by the BONY via the P.C. and will be recorded. The file status (total credit amount and number of records received) will be reviewed and any inconsistency between the file status report and the transmitted file will be reported immediately to BONY.

7. Distributed Direct Deposit advices via the Payroll check distribution system. Employees receive advices at regular pay locations when payroll checks are distributed.

C. Correcting Errors found Prior To and After Transmission of File to BONY

Payroll

1. Detects error in direct deposit detail and notifies Treasury using Direct Deposit Correction form.

Treasury

2. If the error is found between the time of file transmission to BONY and 5:00Project Manager Tuesday, contacts BONY by telephone to report the erroneous entry and requests corrective action.

BONY

3. Makes a debit entry directly to the previously transmitted file, thereby canceling the e instruction to make a deposit to the employee’s account.

Treasury

4. If the error is found after 5:00 Project Manager on the date of transmission, Treasury contacts BONY by telephone to report the erroneous entry and requests corrective action.

BONY

5. Initiates a debit transaction charging the employee’s bank account for the same amount as the original transfer. Note: no partial debit entries are permitted. The debit must fully offset the original transfer.

Payroll

6. After the erroneous transaction is reversed and if the employee is due wages for the period, prepares a manual paydraft, a notice of explanation, a paydraft receipt form and forwards them to Treasury for distribution.

Treasury

7. Sends manual paydraft, notice and receipt form to employee’s pay location.

D. Recovery If Individual Deposit Entry Is Rejected by the ACH System

Treasury

1. Receives notice of rejection from BONY.

2. Contacts HRIS.

3. Sends Form to Payroll authorizing the creation of a manual paycheck (not paydraft).

HRIS

4. Contacts employee to describe situation and to inform him/her that Treasury will be distributing a manual check.

5. Cancels direct deposit for the employee pending resolution of the problem.

Payroll

6. Produces manual paycheck.

Treasury

7. Distributes manual paycheck.

E. Check Creation For Direct Deposit Participants (Recovery Participants)

In the event the entire direct deposit process fails and cannot be implemented, checks will be produced and distributed to all direct deposit participants.

Treasury

1. Informs Payroll that the direct deposit process has failed and that regular payroll checks must be created for all participants.

Payroll

2. Instructs HRIS to reverse the Direct Deposit DOE for all participants. Instructs MIS to re-run the payroll cycle for all employees.

MIS

3. Re-runs the current payroll cycle and forwards payroll checks for every employee and new pay location transmittals to Treasury.

Treasury

4. Signs all payroll checks from the second run and distributes them to employees via the Payroll Distribution network. Prepares and distributes a Notice of Explanation with the checks to inform participants that a check has been prepared in lieu of the deposit transaction.

5. Voids all checks and advices from the initial payroll run and arranges for their destruction.

F. Change in Employee Account Information

Employee

1. Completes two Direct Deposit Enrollment/Cancellation forms; one to terminate the processing to the former account and one with new account information. Attaches copy of voided check or provides savings account deposit slip and bank routing number.

HRIS

2. Enters new information into Payroll System. Informs employee that the new account destination must be pre-noted so it will be a minimum of two weeks before direct deposit will become effective.

G. Employee Withdrawal From Direct Deposit System

Employee

1. Completes Direct Deposit Enrollment/Cancellation Form indicating desire to withdraw from system, signs form, and sends to HRIS.

HRIS

2. Receives form. Makes appropriate entries to payroll system to cancel direct deposit enrollment and restore employee to normal paycheck status.

3. Reviews employee’s DOE record following the next pay cycle to ensure employee’s status has been changes and that direct deposit has been discontinued. Note: A terminated or deceased employee must be converted from the direct deposit system to the standard paycheck process. This conversion will be performed by HRIS when the employee’s pay location is changed: 002 (terminated); 003 (deceased).

This procedure sets forth only guidelines and does not constitute a contract, express or implied. Metro-North expressly reserves the right to change or cancel this procedure at its sole discretion at any time.

Approved: Signed by S. DiMichael, Chief Financial Officer, on 11/17/92

Signed by G. Firnhaber, Executive Vice President, on 11/17/92

Signed by D. Nelson, President, on 11/17/92

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