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The Benefits of Using Direct Deposit to Pay Employees

Have you considered using direct deposit to pay your employees? Among U.S. workers, 82% are paid with direct deposit. As you can see, direct deposit is popular.

There are many benefits of direct deposit for both employers and employees. Both you and your employee might be able to save time and money.

What are the benefits of using direct deposit?

Look below to learn the direct deposit advantages for both you and your employees.

Benefits of direct deposit for employers

Here are ways direct deposit can benefit you:

  • You don’t have to write or print checks.
  • You can pay your employees no matter where you are located.
  • You can move toward paperless payroll.
  • You save money by not paying for checks, ink, or printer maintenance.

Benefits of direct deposit for employees

Here are ways direct deposit can benefit your employees:

  • Employees don’t have paper checks that might get lost or damaged.
  • Employees don’t have to go to a bank to cash or deposit the paycheck.
  • Employees can divide the paycheck into several accounts.
  • Employees have access to their earnings on payday.
  • Employees can receive their paycheck even if they are sick, on vacation, or work remotely.
  • Employees can easily divide their paychecks among multiple accounts, which can help boost employee savings.

82% of employees use and experience the benefits of direct deposit

How to implement direct deposit

Implementing direct deposit is relatively simple. You can check with your business’s financial institution to learn about its direct deposit services. Or, if you use third-party payroll solutions, learn about their direct deposit services.

Once you have direct deposit set up for your business, you need to collect employee information. Information you probably need includes:

  • Employee’s name
  • Employee’s financial institution name and routing number
  • Employee’s bank account number
  • Percentages or amounts to deposit into each account

Depending on how you set up your direct deposit, you can either collect the information from employees and enter it yourself, or employees can enter their information themselves. If you use online payroll software, it may come with employee self-service. One of the benefits of employee self service portals is that employees can update their information on their own.

For each pay period, you need to authorize the amounts that will be sent through direct deposit. Even though this will take some time, it should be significantly less time than if you also had to write and distribute checks.

Keep in mind that employees will likely be asking: when does direct deposit go through? The majority of the time, direct deposit will go through the morning of the pay date for which they’d normally expect a paper check.

Mandatory direct deposit restrictions

Federal law places rules on direct deposit. You can make direct deposit mandatory if one of two conditions is met:

  1. The employee can choose the bank to receive their direct deposit paycheck.
  2. You can choose the bank, but another form of payment must be available.

Each state also has its own laws on whether or not you can make direct deposit mandatory. Check with your state’s department of labor to stay compliant.

If your state does not allow you to require direct deposit, you can still take advantage of the convenience and cost savings for those employees who do opt to use direct deposit.

If you want to experience the advantages of direct deposit, check out Patriot Software’s online payroll software. The software comes with many features, including free direct deposit, free setup, free support, and a free trial. Try the payroll software now!

This article was updated from its original publication date of 10/24/2014.

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