You might have decided to pay some or all of your employees via direct deposit. Direct deposit helps simplify the amount of work you need to do when it comes to paying employees. But, employees might ask you when they should expect their wages to be deposited. When does direct deposit go through?
What is direct deposit?
Direct deposit is a type of electronic fund transfer protected under the Electronic Fund Transfer Act (EFTA). Using direct deposit lets employers electronically put an employee’s wages directly into their bank account. That way, you don’t need to worry about handwriting a check each week or paying employees cash.
You might be able to make direct deposit mandatory, depending on the employer direct deposit law of the state in which your business is located. Or, an employee can elect to receive wages via direct deposit. Employees who want to use direct deposit need to provide you with some information to get their direct deposit set up.
Direct deposit comes with some fees. You might be responsible for paying setup fees, monthly account fees, and transaction fees when you pay your employees. Consider using online payroll software that offers free direct deposit.
If an employee wants direct deposit, you will need the name and routing number of their bank, type of account (checking or savings), and their account number. Usually, employers collect a voided check to verify the information.
When you use direct deposit, you need to provide employees with a pay stub. Pay stub information shows an employee’s pay and deductions.
When does direct deposit go through?
Your employees might wonder when they will receive their paychecks. Some employers decide to pay on a monthly, biweekly, or weekly pay schedule. Your pay frequency will determine when you submit payroll and when employees will receive their direct deposit.
The amount of time it takes direct deposit to go through depends on many different factors. Take a look at the following to answer: “When does payroll direct deposit post?”
Direct deposit service
Knowing when direct deposit goes through depends on the direct deposit system you use. If you use payroll software or another form of payroll tax services, the software service most likely has direct deposit already incorporated.
If you are using payroll software, the software service will instruct you when you need to submit payroll for direct deposit. And, if you do not use payroll software, most direct deposit services give you options for when to run payroll.
Your payroll software service, direct deposit service, or bank will let you know the date you need to submit payroll.
Depending on the direct deposit service you have, you will need to submit payroll by a certain day. For example, you might have the option to submit payroll one, two, or four banking day(s) before payday.
A shorter period of time between when you submit payroll and payday will typically cost you more money. Think of it like sending a package in the mail. If you want the package to get to the destination faster, you need to pay a little more.
Keep in mind that when direct deposit goes through depends on when the Federal Reserve System, and thus the Automated Clearing House (ACH), is open. Direct deposit is only processed Monday-Friday, excluding holidays.
How does direct deposit work on holidays? When the bank is closed for a holiday, you normally submit the direct deposit a day earlier so that your employees receive their wages at the normal time.
If you run payroll and pay your employees via payroll software, the software service might notify you to submit your payroll earlier than normal.
Direct deposit tips
Make sure your employees know when to fill out their timesheets or enter their hours into their online time and attendance portal. It might be beneficial to have them fill out their time cards by the same day each pay period.
Give yourself enough time to go through and approve your employees’ timesheets before the deadline to submit payroll for direct deposit.
Example of direct deposit timeline
For example, you pay your employees on a biweekly schedule on Fridays. The direct deposit service you use requires you to submit payroll four days before your employees receive direct deposit.
Ask your employees to have their timesheets filled out one week before their payroll is due. That way, you can go over their timesheets and submit them before the deadline.
Need a payroll system that offers free direct deposit? With Patriot’s online payroll software, you have the option to pay employees via free direct deposit. Try it for free today!
This article has been updated from its original publication date of February 6, 2017.This is not intended as legal advice; for more information, please click here.