The Impact of the MTMA on Small Payroll Companies: What You Need to Know

What Is the Model Money Transmission Modernization Act (MTMA)?

The Model Money Transmission Modernization Act (MTMA), created by the Conference of State Bank Supervisors (CSBS), aims to unify and modernize money transmitter laws across U.S. states. While originally targeting fintech and digital wallets, it has major implications for small payroll companies that handle client funds.

Why Small Payroll Companies Should Pay Attention

If your payroll firm processes wage payments, taxes, or benefits—and especially if you hold or move funds on behalf of clients—you could fall under the MTMA’s definition of a money transmitter.

That means your business may now require a Money Transmitter License (MTL) in one or more states.

1. A Broader Definition of "Money Transmission"

Under MTMA, money transmission includes:

• Receiving client funds for payroll processing

• Holding funds before disbursement

• Paying wages or taxes from your business accounts

Impact: Many small payroll firms may now be considered money transmitters, even if they weren’t under prior state laws.

2. State Licensing May Be Required (and Costly)

Unless exempted, your business may need to register for an MTL in each state where you operate or have clients. For small payroll companies, this can create significant cost and compliance challenges.

Estimated Costs to Get Licensed:

• Application Fees: $500–$5,000 per state

• Surety Bonds: $50,000–$500,000 based on transaction volume

• Legal & Consulting Fees: $10,000–$50,000+

• Annual Renewals and Reporting: Ongoing expenses

  
  

3. No Automatic Exemption for Payroll Providers

The MTMA does not guarantee an exemption for payroll companies. Each state decides whether to exempt processors—and many have not.

Takeaway: Even if you were previously exempt, you may now need a license in MTMA-adopting states.

4. Increased Compliance Burdens for Small Firms

The MTMA includes new standards for:

• AML compliance

• Cybersecurity

• Fund segregation

• Detailed transaction reporting

Even without full licensing, small payroll providers may face tighter scrutiny and operational expectations.

5. You May Need to Rethink Fund Flows

To reduce licensing exposure, many small payroll companies are:

• Creating client-specific trust accounts

• Partnering with licensed payment processors or banks

• Avoiding holding client funds entirely

Consider redesigning your operations for MTMA compliance before enforcement catches up.

States Are Adopting MTMA One by One

Not all states have adopted MTMA—yet. But adoption is growing, and multi-state payroll firms must be especially vigilant.

Check current adoption status: CSBS MTMA Map (link for internal use)

✅ What to Do Next

Small payroll companies should not wait. Start by:

• Mapping your fund flow model

• Reviewing state-specific rules

• Consulting with legal/compliance experts

• Exploring exemption options or structural changes

  
  

While Accelsure Partners can't help with ongoing compliance challenges with MTMA or future regulations, we may be able to assist you with growth or exit strategies to support the increasing financial burdens for independent payroll providers. Schedule a meeting with us to discuss more.