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The popularity of direct deposit has increased significantly over the last few years, but is it right for everyone?
Direct Deposit – Is it really that simple?
Direct Deposit - we all know what that is. The ability to pay employees or sub-contractors by automatically depositing pay directly into a checking, savings or money market account at any financial institution. Direct deposit provides both the employee and the employer with benefits. The employee receives the convenience and immediate access to funds and eliminates the possibilities of lost or stolen checks.
For employers’ concerned with their carbon footprint, benefits are derived from issuing fewer paper checks (paper and ink). One study, from January 2009, conducted by NACHA's Marketing Management Group (based on US companies saving $605 million annually by switching employees to use Direct Deposit) indicates that an employer can save an average of $176 per employee, per year by switching to Direct Deposit. The biggest benefit to the employer is the reduction of opportunities for fraud through tampered or counterfeit checks.
We can all agree that direct deposit increases both the timeliness and security of the payment.
Basics of the direct deposit process.
Almost every payroll service, and most payroll software (including QuickBooks payroll options-read our recent article on Intuit Payroll) offer direct deposit as an option; in these cases an electronic file is transmitted to the processing bank either from the payroll service or payroll software. Many banks also offer a direct deposit option which allows their regular customers to configure direct deposit payments through their normal electronic banking log-in procedures. In almost all cases there is a processing fee charged by either the bank, the payroll service or the payroll software vendor. Each employer should determine if these costs off-set the savings generated from other benefits.
So what are the drawbacks of direct deposit?
There are a number of potential drawbacks to direct deposit. First, it requires additional work. The employer must continuously update their master employee file with direct deposit account numbers and must routinely monitor the electronic payments to ensure that terminated employees are not receiving payments. Employers with high turnover rates may decide that this process is too cumbersome to maintain.