Pros And Cons Of Using Direct Deposit For Your Business

What Are The Benefits Of Direct Deposit For Employers And Employees?

And some banks require that you receive a certain number of direct deposits a month to waive fees. For example, in order to waive certain fees, you may need to receive direct deposits totaling $500 or have at least one direct deposit per month in any amount.

Setting up direct deposit has benefits for both the company and the employee. As part of an automated payroll system, scheduled compensation can then be paid out to employees to their designated personal accounts via automatic deposit. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media. The jump was so drastic that it actually overtook debit card fraud (44% at $1.2 billion) to claim the number one spot for fraud against bank deposit accounts.

We can all agree that direct deposit increases both the timeliness and security of the payment. Employers aren’t allowed to charge employees a fee based on payment method.

What Are The Benefits Of Direct Deposit For Employers And Employees?

Getting your money faster isn’t the only reason direct deposit is a smart choice. There are many reasons, including convenience, enhanced security and more.

The Benefits Of Automatic Direct Deposit For Employees

Department of the Treasury and Federal Reserve Banks to motivate more Americans to choose direct deposit for federal benefit payments, direct deposit has many advantages. Direct deposit fund posting is governed by Nacha’s rules, which all financial institutions abide by, said Walle. “As a result, the funds are available by 9 a.m. local time at the receiving depository institution on the settlement day,” she said. “Many financial institutions ‘memo-post’ incoming transactions so employees may see a ‘pending’ transaction prior to funds being available.” Thanks to direct deposit, your employees no longer need to head straight to the bank on paydays. The ability to have your paycheck deposited directly into your bank account may be one of technology’s greatest achievements—and it’s not even difficult to set up.

This process eliminates having to purchase, sign and mail paper checks. If the state requires employers give employees a pay stub, payroll software generates the pay stub. Employees paid via live checks must receive their paychecks by payday. Using direct deposit for payments has advantages for employers as well as employees. Businesses can save on resources needed for payroll and don’t have to worry about check fraud. Direct deposit also decreases the risk of lost payments and identity theft from stolen paper checks and paper billing statements. Additionally, because it reduces the amount of paper used to write checks or store financial transaction records, direct deposit is beneficial for the environment as well.

This can be advantageous as it prevents having two payroll systems, which are necessary if only part of an organization’s employees use direct deposit. retained earnings Approximately 82 percent of employees in the United States are paid by direct deposit for work, according to Next Gen Personal Finance.

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It helps businesses save a lot of money by eliminating manual check preparation. Since there is no need for postage and mailing supplies, it saves business owners about$3 per paper check. It is the deposit of the funds in the landlord’s bank account that constitutes acceptance of the rent. A landlord can reject a payment that is offered with a paper check, by either mailing the check back to the tenant or refusing to accept hand delivery. Just as with a paper check, before writing checks against the deposit, the employee should be sure the electronically deposited funds are in their account and available. Some employers allow you to set up direct deposit with multiple accounts.

If you decide to share the account details by providing a check or copy of a check, be sure to write “void” across the check before submitting it. Rest easy knowing that the auto-payments you have scheduled or the checks you’ve written will clear. But when it needs to be done, ensure you’re being compliant with local requirements. Like most things in HR, it all depends on the employment law in your state and the classification of employees. Once your provider has all of the necessary information and reviews your orders, they will handle the actual process of depositing the checks.


During payroll processing, the payroll representative creates a direct deposit file for the pay period. Then, she calls the bank to ensure the file is properly received. This process limits the chances of checks getting lost, stolen or counterfeited. Notably, if the payday falls on a holiday or weekend, direct deposit funds are usually available on the preceding business day. Direct deposit is an option where funds are electronically transferred from one bank account to another. It is typically used for regularly scheduled payments, such as salary, pension, or government benefits. Money is exchanged from the payer to payee in a smooth, secure, and convenient process.

What Are The Benefits Of Direct Deposit For Employers And Employees?

The card can be used by individuals without bank accounts to receive funds and is a collaboration between the U.S. Treasury Department, Comerica Bank, and MasterCard and is for the benefit of federal recipients. A direct deposit can be defined as a payment made directly into a payee’s account. The payment can be made electronically from one account to another instead of the traditional check deposit. Direct deposits are especially common for businesses, as they make use of the transaction to pay their employees. To find out exactly how much it costs to set up and maintain direct deposit, contact your financial institution or payroll provider. The financial institution or payment processor pays a fee to use the ACH network, but Nacha does not track fees that a business may incur, McElrath said.

However, even these states maintain a mandated exception for employees who don’t have a bank account, allowing them to opt for a traditional paycheck, payroll card, or cash compensation. Advantage handles direct deposits with the same high level of accuracy, timeliness and confidentiality we bring to all of our payroll processing and other value-added services. Regardless of the check option you choose , your employees will enjoy the benefits of direct deposit.

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Miriam Caldwell has been writing about budgeting and personal finance basics since 2005. She teaches writing as an online instructor with Brigham Young University-Idaho. Sealed employee payroll statements detail all earnings, deductions, deposits and other pertinent information. You can find the account and routing numbers by accessing your online account or in your physical checkbook along the bottom of the check.

  • With advancements in electronic payment technology like same-day ACH, your business can have more control over your funds.
  • Once money is sent through a direct deposit, it is immediately available for you to use.
  • Even if employees are still coming onsite to work, there are health and safety risks that could come from going to a bank or check-cashing location.
  • Paper checks, on the other hand, may be more difficult to trace if they are lost in the mail or before being deposited into your account.
  • Get Your Managers Behind Your HCM Strategy Your Human Capital Management strategy needs the right team behind it to help make it a success.
  • Check with your provider about direct deposit requirements and when you need to run payroll to ensure your employees are paid on time.

Automated Clearing House is an electronic network that lets banks bundle and process multiple transactions together into batches. However, those without a bank account can sometimes use a prepaid debit card, also called a payroll card. Direct deposit can help you avoid the inconvenience of having to go to your financial institution or an ATM to deposit a physical check. If you are electronically depositing your money into your account, you can save time by avoiding Certified Public Accountant having to sign or upload the check as well. If you provide direct deposit to your employees, you may also be required to provide them with a pay stub if it’s required in your state. Federal law does not mandate pay stubs for workers, but the Fair Labor Standards Act requires employers to keep accurate records of employees’ wages and hours worked. Your state might not require employer-issued pay stubs, but an employee has the right to request payroll records.

You can usually have your paycheck deposited directly into more than one account . More than 93 percent of U.S. workers receive their pay by direct deposit, according to the 2019 “Getting Paid In America” survey. With the direct deposit option available, transactions have become easier and faster. A direct deposit minimizes bank visits for both the payer and the payee. Funds transferred are usually available immediately or do not take a considerable amount of time to be processed. Once a direct deposit is made into a payee’s account, the account is automatically credited, and clearance for the money is not necessary. Employers aren’t allowed to charge employees fees based on payment method.

Should I do check or direct deposit?

You should check into whether your employer offers direct deposit and how it would work for you. Direct deposit is usually safer and faster than getting a paper check or cash. Some employers or payroll processing services will process direct deposits so that the funds are available on payday.

Transaction fees vary according to the bank, size of the employer and other factors, and may range from a few to several hundred dollars. Direct deposit provides an employer with immediate electronic transaction reports. Depending on the software involved, other financial reports could be immediately available, which would not be possible in a paper system. Getting “straggler” employees to enroll in an up-and-running program can be a challenging task. There may be some initial costs to set up accounts and direct deposit bookkeeping software. Overall, direct deposit is beneficial to both employers and employees. Indirectly, the money that the company saves is available for employee pay raises or other benefits, although that doesn’t always occur.

For example, say you’ve just been hired to work for a new company. As part of your new-hire paperwork, you’ll probably receive a direct deposit signup form. On the form, enter your bank or credit union name, routing number, and account number, and indicate whether you’d like your whole check or a portion of it to be directly deposited to your account. Return the form to the correct department, usually human resources. Many businesses are set up to do direct deposits through their banks. You may also have one-time payments directly deposited to your account. Federal benefits or unemployment pay may also be paid as a direct deposit.

For most companies, however, the benefits of direct deposit far outweigh the potential problems. If the tenant goes online and makes the direct deposit, that constitutes acceptance of rent by the landlord. To proceed with eviction, the landlord needs to start all over with a new notice to vacate, then file a new court case. The only way to avoid this would be for the landlord to close the bank account to prevent a direct deposit. However, this can incur bank fees and cause other problems if the landlord is using the account to pay expenses or to receive direct deposits from others. It eliminates the need for checks that typically take a few days after depositing to clear the bank’s processing system.

And, when talking with new hires, be sure to “sell” direct deposit as a company benefit and encourage them to start with the program from the beginning of their employment. Clearly, employers and employees benefit from a payroll system that involves the use of automatic deposits to distribute salaries and wages. Checks are never delayed or lost in the mail because payouts go directly to the payees’ accounts. Privacy and security of information is better given that fewer people are involved in processing the payroll. Not only this but you can also run into problems trying to cash the check.

Author: Emmett Gienapp