Considering Direct Deposit For Your Employees?
If you pull out a physical checkbook and write out handwritten checks to your employees every pay period, you’re doing it old school — but you’re not alone. Many small businesses use the tried-and-true method of handling payroll with physical checks because it is familiar and comfortable. The idea of using a method like direct deposit can seem intimidating or strange, but it’s not as hard as you might think.
You probably know how direct deposit works. In technical terms, it’s a type of ACH transaction — which is an automated electronic transfer of funds from one bank account to another that can be scheduled to happen at the same time each day, each week or each month — as often as you need it. It makes paying bills easy and painless.
Now, direct deposit is common, so if you choose to make use of it, you’ll find plenty of sources to help you quickly implement it.
There are many advantages for businesses that use direct deposit to pay employees. Consider this:
1. It typically costs less to pay employees through direct deposit (an average of 35 cents or less per employee) than with a paper check (which can cost up to $2 to cut and process).
2. It reduces the risk of fraud or stolen and lost checks, which can cost a business.
3. It allows for timely payment of employees at the end of each pay period — even if you’re out of town or otherwise unable to get into the office.
4. It reduces your bookkeeping needs.
Employers are not the only ones who benefit either. Research suggests as high as 97 percent of people who use direct deposit love the advantages it provides. Among those advantages are:
1. Workers receive their paychecks easily and in a timely manner.
2. It takes less time for the money to clear, so the funds can be accessed faster.
3. There’s less risk of losing the check.
4. It saves time — there’s no need to visit the bank.
5. It costs nothing for employees to use direct deposit with their bank accounts. In fact, many banks offer free checking accounts to those who use direct deposit.
While it does cost you as a business owner to pay your employees, the cost ends up being at least equal to, if not less than, the cost of using paper checks in the long run. And the savings you’ll see in time spent may make it worth your while to ditch the checkbook and start using online methods for payroll instead.
If you’re ready to make the switch and start using direct deposit for the first time at your business, keep in mind:
1. There are generally two ways to get the software you need to do payroll electronically. One is through a financial software program, such as QuickBooks. The other is through the online payment options and/or software provided by your bank. If you have questions about how to get started, your bank and your financial software company can help you.
2. Initially, it may take you some time to set up your system to accommodate direct deposit. Don’t let that discourage you. Once your setup is complete, direct deposit can speed up your payroll process significantly.
3. When you switch over to paying your employees by direct deposit, be sure you’ve planned for the actual date the money will leave your business account. Most banks offer next-day ACH processing, so factor that into your payroll dates to avoid overdrawing your payroll account.
4. Take advantage of online perks! For instance, you can schedule ACH payments several days ahead of time, which is ideal when you’re going to be out of town on business or on vacation.
5. Find out which of your local banks offers the best deal for direct deposit charges. Most banks charge a fee for you to use ACH when paying your employees, but those fees vary by bank.