Payroll Articles
Payroll Direct Deposit
Payroll Direct Deposit is the electronic transfer of a payment from a company or organization into the checking or savings account of an employee, retiree, taxpayer, or shareholder. The payment can be divided among several different accounts and, in many cases, between different financial institutions. The most popular application of our Direct Deposit Service is for payroll, but it can also be used for many other types of payments, including:
- Annuities
- Bonuses and commissions
- Dividend and interest payments
- Pensions
- Travel expense settlements
- Tax refunds
- Social Security or other government payment
Direct Deposit Facts
- Direct Deposit is the electronic transfer of a payment from a company or organization into an individual's checking or savings account.
- Direct Deposit is a smart way to get paid. It is ideal for more than just payroll. Other applications include expense reimbursements, tax refunds, pensions, dividends and bonuses.
- The benefits of Direct Deposit to both consumers and companies are numerous. This is why more than 80 percent of large companies (100+ employees) offer Direct Deposit, and it has become a staple in today's employee benefit packages.
- Direct Deposit is safe, confidential, convenient and fast. Employees who use Direct Deposit can access their pay in their accounts at their financial institution's opening of business on payday. For income tax refunds, the government often makes refunds via Direct Deposit within days of receiving returns. With Direct Deposit there is no waiting for checks to clear.
- Problems with Direct Deposit are very rare. The chance of having a problem with a check is 20 times greater than with Direct Deposit. If a problem does occur, it is generally easy to resolve. Consumers usually only need to contact the company or organization that made the deposit, or their financial institution.
- Ninety-seven percent of those who use Direct Deposit are very satisfied with it.
- Sixty-five percent of employees who have Direct Deposit available use it.
- Companies can save anywhere from $0.50 to $0.60 per payment by using Direct Deposit instead of checks.
- Companies of any size can offer Direct Deposit. Many payroll software packages, as well as independent processors, provide a Direct Deposit feature.
- Many financial institutions offer free checking or other account benefits to consumers who use Direct Deposit.
How Direct Deposit Works
- By completing a standard enrollment form, a person authorizes a company or organization to make a Direct Deposit payment into one or more of his or her accounts.
- The company or organization making the Direct Deposit may perform a test run by sending the consumer's checking or savings account information, but no dollar amount, to the consumer's financial institution via the ACH Network. The consumer's financial institution notifies the company or organization if the entry can't be posted or if any changes need to be made to the account information.
- After making any necessary changes, the company or organization processes the live ACH transactions by delivering an ACH file, usually by transmission, CD-Rom, or diskette, to its financial institution. There must be at least six banking days between sending the test entry and sending the first live entry.
- The company or organization's financial institution processes the ACH file, extracting any transactions for accounts at its institution, and delivers the remaining transactions for distribution through the ACH Network one or two days prior to the Direct Deposit date.
- On or before the Direct Deposit date, the company or organization's financial institution debits their account for the total amount of the Direct Deposit transactions that were on the ACH file.
- The financial institutions that receive the Direct Deposit transactions credit the consumer's account(s) and report the transaction(s) on the consumer's monthly account statement(s).
- Companies and organizations should provide a paper or electronic advice of the Direct Deposit payment to the consumer. In the case of Direct Deposit of payroll the advice would include the same information the company provides on a paycheck stub, including deductions and net pay amount
State Rules
- The various states have rules on:
- Whether a company can insist on Direct Deposit
- Fees incurred by employee
- Who chooses the Financial Institution for the Direct Deposit?
- Others
These rules are in constant change because of pressure by financial institutions and large employers as well as labor organizations. Should you have any questions about your state check with your state labor department or you payroll professional?