Direct Deposit

Pay expectations have evolved where many employees today prefer paperless pay options over pay cheques. Employers can meet this demand by setting up direct deposit for their employees. But what is direct deposit exactly, and how difficult is it to make the change from pay cheques to direct deposit? Before exploring how to make the switch, it helps to understand direct deposit and the benefits it offers.

What is direct deposit?

Direct deposit is the electronic transfer of net pay from an employer’s financial institution to an employee’s personal bank account. This exchange takes place through Electronic Funds Transfer (EFT).

What are the benefits of direct deposit?

Direct deposit surpassed printed pay cheques as the preferred means of wage payment largely because it’s faster and more secure. There are also many other aspects of direct deposit that benefit both employers and employees.

Benefits of direct deposit for employees

There was a time when employees worried about being unable to deposit their pay cheques because of inconvenient bank hours or inclement weather. With direct deposit, those stressors are gone. Some of the features that employees appreciate most about electronic payments include:

• Speed: Funds are delivered quickly so there’s minimal wait time and faster access to wages.
• Security: The risk of lost or stolen cheques is eliminated entirely because funds are electronically transferred directly to employee’s account.
• Convenience: Saving time because trips to the bank or ATM to deposit cheques are no longer necessary.
• Accuracy: Electronic records and access to mobile or online banking makes it easier to fix mistakes or locate missing funds.

Benefits of direct deposit for employers

Direct deposit is just as beneficial to employers as it is to employees. With electronic payments, businesses may be able to:

• Prevent fraud: Direct deposit helps keep your financials safe, as lost or stolen cheques with business account information pose a security threat.
• Minimize labour: HR professionals spend less time processing pay cheque paperwork and mailing or distributing paper cheques.
• Keep accurate records: Going paperless simplifies bookkeeping and the ability to view transaction history.

Benefits of direct deposit for small business owners

Direct deposit benefits all employers but it’s especially valuable to small businesses that may be operating on a tight budget. When employers distribute pay cheques they have little control over when employees deposit them. This can cause a cash shortage if the employees withdraw funds at a time when rent, utilities or other expenses are due. Direct deposit minimizes this problem because it allows employers to regularly schedule the exact time that their account will be debited. In this way, they can better manage their finances and pay both their bills and their people.

Cons of direct deposit

Direct deposit comes with greater efficient but also a risk of online security hacks. Cybersecurity attacks on financial information include:

• Backdoor attacks: Where thieves exploit alternate methods of accessing a database that doesn't require traditional authentication.
• Denial-of-service attacks: Where a rightful user is prevented from accessing a system often by entering a wrong password enough times that the account is locked.
• Direct-access attacks: bugs and viruses gain access to a system and copy its information.

Direct deposit providers for small business

Some payroll service providers offer direct deposit services for small businesses after performing a credit check. Once the employer is approved, the provider processes the electronic payments automatically on each payroll cycle.

Other options for small business direct deposit require the employer to find a third-party vendor or use wire transfers, which typically incur charges per wire, per employee. Just how much is direct deposit in these cases? It all depends on the number of employees the business has and its contract with the provider.

Best direct deposit providers for small business

Of the available direct deposit options, working with a payroll service provider is the most efficient and economical way for small businesses to pay their employees. There’s usually no additional charge, whether the employer chooses to use direct deposit or cut cheques, and the provider handles the electronic transfers for them.

How to set up direct deposit for employees – a step-by-step look

Follow the simple steps below to start paying your employees via direct deposit:

1. Choose a payroll service provider: Employers can choose to work with the bank that handles their business bank account or a payroll service provider who has direct deposit capability.
2. Establish a company payroll account: A business bank account is required to make direct deposits. Businesses that work with a payroll provider may have to supply details about their company and bank account.
3. Gather employee information: Each employee needs to provide the following information: bank name, transit number, bank institution number, and account number to their employer. A void cheque from an employee’s financial institution provides this information.
4. Upload employee data: If the payroll provider has self-service capability, employees may be able to enter their bank information themselves into the payroll software. Otherwise, the employer will be responsible for getting the financial institution or the payroll provider the necessary details.
5. Sync direct deposit with a payroll schedule: Some banks and payroll providers require payroll to be run a certain number of days in advance of payday for direct deposit. Businesses who have already been paying employees need to make sure that their direct deposit schedule will work with their existing payroll calendar or create a new one.
6. Process payroll: If everything is set up correctly, employees will automatically receive their wages in their bank account every time payroll is processed.

Frequently Asked Questions

How long does it take to set up direct deposit?
Setting up direct deposit can take anywhere from one day to a few weeks, depending on the provider. This wait period applies every time new employees are added to the system.

How much does it cost to set up direct deposit?
The cost to set up direct deposit generally depends on the bank, the size of the business and the contractual agreement between the two. Some banks may also have monthly service charges or transaction fees. Payroll providers, meanwhile, often include direct deposit as part of their basic service package at no additional expense.

Does direct deposit cost money for employers?
Payroll providers usually include direct deposit as part of their basic service for small businesses with no additional fees. Banks and third-party applications, however, may charge employers per transfer, per employee.

Learn More

ADP offers global payroll solutions that seamlessly integrate with leading human capital management (HCM) systems. This connectivity can help unify data, streamline HR processes, and reduce the complexity of managing an international organization.

Get payroll done faster and tax filing done for you with a modern platform and direct access to payroll experts, designed to make paying your people easier (and more enjoyable) than ever before. Call 866-622-8153 or start a quote to get started.