The benefits of using direct deposit in your business

Saturday, January 03, 2015

Everything business owners should know about direct deposit as part of payroll processing

What is direct deposit?

Direct deposit is a type of payment method that employers use to issue paychecks to their employees. Direct deposit is an electronic funds transfer, meaning that money can be moved from one bank account to another bank account in a very short amount of time. Based on employee preferences (such as which bank accounts they would like to utilize), a company can set up regular payments to the preferred bank account with the correct bank account number. This makes payday stress-free, easy, and more streamlined, especially since paychecks arrive into the employee account without any extra effort on behalf of the employee.

What are the benefits of direct deposit for the employer?

Direct deposit is so commonplace that many (and most) employers offer this as a possible payment method for employees to use for their paychecks. Thus, it has become a standard benefit of bringing on new team members.

Control of payroll expenses

One of the biggest advantages to using direct deposit is the ability to leverage technology for a greater analysis of workplace analytics, like hours worked and daily labor costs, so that you can forecast labor needs over time. Payroll systems that offer direct deposit can help calculate time cards and hours quickly. Plus, these systems often require managers or supervisors to approve timecards and paychecks before leaving the employer’s bank account, giving you more control over the flow of funds. Moreover, online transaction reports are often available immediately during each pay period.

Cost savings

One of the biggest ways that direct deposit can save companies money is through the automation of bookkeeping tasks. Immediate payments reduce the time that human resources teams need to issue, process, and deliver paychecks by hand. Plus, with the automation of direct deposit, you are less likely to encounter check fraud or lost or stolen checks.

What are the direct deposit benefits for the employee?

Access to funds

Direct deposit enables employees to access their funds on a more consistent basis as well as a more timely basis. Instead of additional time waiting for their paper checks to clear, direct deposit can move more quickly once funds are approved through the automated clearing house (ACH). Many employees can check their bank accounts through online banking platforms and determine the amount of their check on payday. For many employees, the cost of direct deposit is free and doesn’t require them to pay any type of fee for use of this service.

Increased security

With payments going directly to the checking accounts of employees, the risk of losing checks or having checks stolen goes away. Instead, employees can maintain their peace of mind that their paychecks are secure and will arrive within a set amount of business days. Better yet, setting up direct deposit is quite simple; employees provide their bank account information on a direct deposit form and the human resources team enters this data so that payroll can be directly connected to their account.

Saves time

Instead of having to visit a bank or find an ATM to deposit a paycheck, direct deposit automatically happens without the employee having to do anything else. The ease of this process will help employees focus on other aspects of their work, trusting that their payroll needs are taken care of.

Are there any drawbacks with using direct deposit as a type of electronic payment?

While direct deposit accounts offer a safe, convenient, and easy way to deposit employee funds during a given pay period, this particular method does have some important considerations to keep in mind.

The first consideration is that not all employees utilize or access bank accounts as part of their own financial management system. If this is the case, this type of employee won’t be able to set up direct deposit because they don’t have the account infrastructure or information required. Unless you are in a state that has mandatory direct deposit laws, it may be worth considering other payment options that you can offer your employees.

A potential second drawback for companies when using direct deposit, especially small businesses, relates to setup costs and ongoing service fees. To go paperless and do away with paper checks, direct deposit service providers may charge a fee for setting up the technology as well as a transaction fee when funds to pay employees go through. For larger companies, there may be budgetary flexibility for this service. However, for small businesses, it may be important to consider the cost savings opportunity with using direct deposit, despite any fees or costs that may be associated with this payment method. Human resources departments may be especially useful in understanding the costs for direct deposit as opposed to more traditional methods of payment, like checks.


Next steps

Are you ready to implement the advantages of direct deposit at your business? Are you ready to optimize payroll expenses and deposit information?

Heartland is ready to help.

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us.