The Many Wonders of Direct Deposit
Are you unsure about how to set up direct deposit for your employees or contract workers? Though it may seem daunting at first, especially if you’re not familiar with the process, direct deposits can be set up rather quickly.
Let’s start by defining direct deposit. In essence, a direct deposit is an electronic payment of funds from one bank account to another. It’s that simple! You transfer the appropriate funds from your business bank account to your employees’ bank accounts, all without having to worry about physical checks or cash.
When the direct deposit goes through, your employees will receive the electronic payment equivalent to their salary, and the payment goes directly from your bank account to theirs. Direct deposits result in an automated clearing house, or ACH, payment. Ultimately, direct deposits eliminate the need to pay employees physically. Instead, all payments are processed digitally.
How do direct deposits work?
You’ll need to initiate direct deposit payments with your bank. As you strive to set up direct deposits, the ACH will receive the direct deposit orders and then allocate them to the appropriate bank accounts in accordance with each of your employees. From there, your employees’ banks will receive those orders and distribute the proper amounts to the accounts of your employees.
The process of directly depositing funds into your employees’ accounts generally takes between one and two days. There are also many rules in place to eliminate safety and privacy risks.
Now, the exact timing of the direct deposits will often depend on your bank, the banks of your employees, the payroll software that you use and national holidays that may affect bank operations. Your payroll software and your bank can usually help you plan out your payroll schedule and subsequently your direct deposit schedule.
Cost of setting up direct deposits
So how much will it cost you to set up direct deposits for your employees? The exact amount that you can expect to pay will depend on a few different factors; namely, which direct deposit provider you choose.
Alternatively, if you use a bank, the costs of setting up direct deposits will depend on your bank’s fees and regulations. Generally speaking, banks often charge a setup fee that usually ranges anywhere from $50 to $149, according to the National Federation of Independent Business.
Some banks charge ongoing monthly fees, though many do not implement this practice, and others charge transaction fees as well. These transaction fees might be charged per pay period or employee. Once again, it all depends on your specific bank’s procedures and requirements.
Likewise, the dollar amount of the fees will vary, depending on the bank, the size of your business and your direct deposit agreement. According to NFIB, the average dollar amount of transaction fees can vary from $1.50 to $1.90 per deposit.
If you utilize payroll software or some sort of technology that has payroll capabilities, the fees that you pay will depend on the individual software. Many software programs give you access to direct deposit services at no additional cost, but not all software options include the direct deposit service as part of the subscription price. So look into these details before deciding which software program to utilize.
Setting up direct deposits with your bank
If you set up direct deposits through a bank, be prepared to provide recent financial statements to verify that you have the necessary finances to set up direct deposits for your employees. If you opt for a payroll software instead, you’ll need to input your business’s bank account information and respond to a verification email to confirm that you are the administrator of the account.
Most setup processes will require a direct deposit test as well as a small withdrawal from your bank account. From there, you’ll verify that the transaction was successful to confirm that the direct deposit process is working as it should.
You’ll also need to receive a signed authorization form from each of your employees before you can transfer funds to them electronically. With the help of HR software that employees can log in to and monitor as they please, employees can give direct deposit authorization within seconds.
It can take anywhere from seven to 10 days to officially set up direct deposits. The pay schedule that you set up for your employees will be up to you, but make sure the schedule you impose is one you can stick to so that your employees can rely on consistent payments.
Communicate the payment schedule with your employees and payroll administrators so that everyone is on the same page. Finally, you’ll want to set up a cutoff date so employees know when they must submit their hours for review and timely processing as part of payroll.
The benefits of direct deposits
From an employee’s perspective, they can expect to receive their direct deposit every pay period. Direct deposits arrive in employees’ bank accounts on a regular basis, so they will always know when to expect their payment and how frequently they’ll be paid. The predictability factor will also help them plan their personal finances accordingly.
For you, the employer, direct deposits can provide you with much better control over your business finances because you’ll know when money is going to be withdrawn from your account every month. Additionally, you won’t have to worry about the possibility of payments being stolen or having important data about your business in the hands of thieves with ill intentions.
The drawbacks of direct deposits
A potential hassle that you may face when setting up direct deposits for you and your employees comes down to the maintenance involved in creating new accounts. There will likely be undesirable fees and security requirements.
But at the end of the day, direct deposits are worthwhile for everyone involved. For more information about setting up direct deposit payments for your employees, contact us.
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