Unsure about the process of setting up direct deposits for your employees or contract workers? While it might seem intimidating at first, especially if you’re not familiar with the steps involved, direct deposits can be set up pretty quickly.
Direct Deposit Defined
Direct deposit refers to the electronic transfer of funds from one bank account to another. It’s convenient and easy! By initiating direct deposits, you can effortlessly transfer the required funds from your business bank account to your employees’ or contract workers’ bank accounts, eliminating the need for physical checks or cash transactions.
When the deposit is completed, your employees will receive their wages in the form of an electronic payment, which directly transfers from your bank account to theirs. Direct deposits use an automated clearing house (ACH) for payment processing. The beauty of direct deposits is that they eliminate the need for physical payments to employees, as all transactions are conducted digitally.
How Do Direct Deposits Work?
To set up direct deposit payments for your business, you’ll need to initiate the process with your bank. Once you’ve taken the necessary steps to establish direct deposits, the automated clearing house (ACH) will receive the direct deposit orders and allocate them to the respective bank accounts of your employees. Subsequently, your employees’ banks will receive these orders and distribute the proper amounts to their accounts accordingly.
There are many rules in place throughout the process to mitigate privacy and safety risks. It’ll generally take one to two days before direct deposit funds are released in your employees’ bank accounts. However, the exact timing depends on factors such as your bank, your employees’ banks, the payroll provider you’re using, and national holidays affecting banking operations. Your bank and payroll provider can assist in planning your payroll schedule for optimal efficiency.
What Does It Cost to Set Up?
The costs of setting up direct deposits for your employees will depend on a few different factors, particularly which provider you choose.
If you choose to use a bank, your setup costs will depend on the fees and regulations of the specific bank, Typically, banks charge a setup fee ranging from $50 to $149, according to the National Federation of Independent Business (NFIB). While some banks charge ongoing monthly fees or transaction fees per pay period or employee, many don’t follow this practice. Once again, the specific charges and requirements will vary based on your bank.
Likewise, the transaction fees will also vary based on the bank, your business size, and your agreement terms. The average transaction fees generally range from $1.50 to $1.90 per deposit on average, according to the NFIB. If using payroll software provider, the fees will depend on the specific provider. It’s essential to review these details before deciding which option to go with.
The Setup Process
If you go through a bank to set up direct deposits for your business, be prepared to provide recent financial statements as proof of funds. If you opt for the payroll software provider route instead, you’ll need to provide your bank account details and complete a verification process to confirm you’re the administrator of the account.
Regardless of which route you choose, the setup process will require a direct deposit test and a small withdrawal to confirm successful transactions and ensure the process is working properly.
Before you can transfer funds electronically to your employees, you’ll need to get a signed authorization form from each employee. Luckily, with the help of user-friendly HR software, employees can simply log in and give their authorization in a matter of seconds.
The setup process can take anywhere between seven to 10 days to complete. The pay schedule you set for your employees is up to you, but it’s important to choose one that you can adhere to so your employees can be confident they can rely on consistent payments.
Be sure to communicate the payment schedule clearly with your employees and payroll administrators to avoid any confusion. Lastly, as part of your payroll process, you’ll want to set a cutoff date for employees to submit their hours for review and timely processing.
Advantages of Direct Deposits
Direct deposits provide employees with the convenience of receiving regular payments, allowing them to plan their finances confidently. Employers benefit from better financial control and increased security, as direct deposits eliminate the risk of theft and safeguard sensitive business data. It’s a secure and efficient payment method that benefits both parties involved.
For further guidance on setting up direct deposit payments for your employees, it is recommended to consult with a trusted payroll provider or reach out to your bank for further insight into the process.