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Benefits of Direct Deposit


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Employees love direct deposit. There’s no standing in line at the bank to cash their checks, and they often receive their funds days earlier than they would have by processing checks received at work or sent through the mail. However, direct deposit provides significant benefits for employers as well. Even better, making the move is often a relatively simple process for employers.

How Direct Deposit Works

If you’ve ever used a debit card to make a purchase, you’ve been exposed to the Automated Clearing House (ACH) system. Direct deposits use the same ACH system to electronically transmit funds from your company’s payroll account to designated individual employee bank accounts. And just as the ACH system has largely eliminated the concept of “floating” a check over several days, direct deposit has shortened the time needed to make paychecks available to your company’s workers.

Reduced Processing Costs

The physical process of processing and distributing payroll checks is both time and labor intensive. Think of the ink, paper and printer maintenance involved. In addition, each check must be completed individually and signed, either by hand or mechanically. Employees must wait to either receive their checks at work or anxiously watch their mail every week or two weeks.

Producing paper checks is also surprisingly expensive. According to payroll outsourcing company Paychex, switching to a paperless payroll system translates to savings ranging from $2.87 to $3.15 per check. That may not seem like much money, but multiplied over even a few employees over a period of several months or years, the costs can really add up.

Enhanced Efficiency and Convenience

Time not spent processing paper checks can be devoted to other areas of your business. If you operation is small – your office manager can devote more time and effort to other areas of the business, such as monitoring supplies or inventory rather than processing payroll. If your company is large enough to have a dedicated Human Resources department, they can devote more of their efforts toward staffing and other functions that keep your company working smoothly – and less time on cutting checks.

Direct deposit also provides 24/7 availability for payment histories. Employees can incorporate their direct deposits into their online banking platforms for easier budgeting. Likewise, business owners have ready access to financial records in a form that is easily adapted into expense reports for accountants and other financial professionals.

Decreased Risk of Lost Checks

Paper checks can be misplaced or even stolen. Even if lost checks are not improperly cashed, replacing them can be a hassle for employer and employee alike. Lost or stolen checks may be fraudulently cashed, representing a potentially substantial loss for the employer. In addition, lost or stolen paychecks expose affected employees to identity theft. Switching to direct deposit removes paper checks from the equation altogether.

Smaller Carbon Footprint

Producing paper requires a substantial investment of natural resources, including hundreds of gallons of water. Going paperless – or at least adopting direct deposit, allows your company to reduce its carbon footprint significantly. On the other hand, insisting on sticking with routine processing of paper checks can give the impression to potential customers – as well as to the genera public – that your company is somewhat behind the times, even old fashioned. That’s not a good look for your business.

Direct Deposit with Accounting Software

Many small business owners use Quick Books or similar software accounting packages for their payroll and accounting. These programs often make adopting direct deposit both simple and easy. As an alternative, you may opt to establish ACH payroll processing through your company’s bank. Banks often provide ACH services for a modest fee – often without requiring a minimum number of deposits or setting limits for maximum deposits. Best of all, these services are frequently designed to work seamlessly with software accounting packages.

To establish direct deposit with your company’s accounting software, you’ll need relevant data such as employee names, Social Security numbers, pay rates and bank account numbers. Once you’ve assembled the necessary information, simply schedule deposits for your desired dates, and the software takes care of the rest. For your employees, establishing direct deposit involves providing a voided check along with written authorization for direct deposit of their paychecks.

Outsourcing Direct Deposit

You may also opt to outsource many of your company’s personnel related functions, including payroll. Many payroll processing services include direct deposit as a standard service for their customers. For some entrepreneurs and small business owners, the cost of outsourcing their payroll represents a worthwhile investment – freeing them to concentrate on the substance of managing their businesses.

Disclaimer: This article represents a general discussion of direct deposit and its benefits. It is not intended to provide financial advice. Please consult with a financial advisor in your area concerning specific questions about establishing or maintaining direct deposit for your company and its workers.

Audrey Henderson

Posted In: Money

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