Direct Deposit
Depending on how direct deposit is set up within your payroll application software, you can split your employees’ net pay into multiple direct deposits at one or more financial institutions (i.e., a checking account at one institution, a savings account at a different institution). Through payroll service providers or inexpensive PC‑based software, even companies with one – or two‑person payrolls, seasonal workers, or temporary employees can reap the benefits of direct deposit.
Direct deposit relies on an electronic funds transfer system called the Automated Clearinghouse (ACH) Network. The ACH Network is a cooperative system of more than 10,000 financial institutions that annually processes more than 33.6 billion transactions valued at $86.2 trillion.
The ACH Network is used for a variety of payments besides direct deposit of pay. More than 99% of all Social Security benefit payments are directly deposited into recipients’ accounts using the ACH Network. In 2020 and 2021, the Economic Impact Payments that were authorized under COVID‑19 relief legislation were delivered by direct deposit to eligible taxpayers for whom the IRS had account information. Company payments of federal and state taxes can be paid via the use of the ACH Network and many businesses use the ACH Network for the electronic exchange of payments and information. Using an ACH Operator, participating financial institutions exchange transactions according to the rules administered by Nacha and other federal and state regulations.
Benefits of Direct Deposit
Costs
Costs. In today’s economy, most companies are looking for ways to decrease operating expenses. One way for the payroll team to contribute is to increase employee participation in electronic wage payments, either through direct deposit via ACH or the use of payroll cards. Either choice will reduce the expense of the administration of issuing payroll checks. Increasing participation in direct deposit is directly related to decreasing your company’s expenses.
Disaster Recovery
Disaster recovery. Increasingly, employers are preparing contingency plans that will enable business to continue in the event of a business interruption. Whether isolated to a specific location or spread over a regional area, the direct deposit program can ensure payment to your employees on time, providing the employee with payroll funds that can be accessed from virtually anywhere.
Natural disasters like earthquakes, blizzards, tornados, hurricanes, and floods can happen anywhere, at any time, and it’s important to stress to your employees just how much direct deposit can benefit them in these types of situations.
Employees may not typically consider where their checks come from and how they receive them. If they don’t work at the same location as their payroll department, those checks have to be delivered by U.S. mail or courier service. Most couriers have hubs where all of the shipments are sent before they are distributed from that location. What happens if there is a disaster in the hub city? Or, as was the case directly following 9/11, where all air traffic is grounded? Additionally, with the slow down of the U.S. Postal Service, they will add increased delivery time.
It can be difficult to locate employees in these situations, let alone deliver paper checks to employees who have been displaced as a result of a disaster. For some employees, the loss or delay of their wages for a week can be difficult. If they have direct deposit, the money will be deposited into their accounts automatically. Knowing they will be paid timely regardless of any situation will be one less thing they need to worry about.
Service to employees
The payroll department serves as a liaison between employees and employers. This occasionally requires you, as a payroll professional, to oversee the interests of both parties. Therefore, in providing an additional benefit to the employee, as well as reducing operating costs, the payroll office has met its obligation. As the payroll professional in your company, you can promote direct deposit as an employee benefit by highlighting the many advantages electronic payments offer to employees. Employees no longer will need to use personal time to make a trip to the bank.
In addition, funds are available on payday. Even when your employees are sick or on vacation, they can be secure in the knowledge that their money is deposited safely into their accounts. Depending on the employer’s payroll system, employees may be able to deposit funds into several accounts, including both savings and checking accounts.
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