Definition of Direct Deposit:
Direct deposit is the practice where you transfer money electronically from one bank account to another. It is regularly used for salary, pension, gratuity and other monetary government perks. Direct deposits are processed much quicker, safer, and a convenient process.
How to set up Direct Deposit?
Direct deposit bank transfers are done using Automated Clearing House (ACH) network, which processes payments among financial institutions.
To enable direct deposit for your organization, obtain the bank account information of your employees. You can get this information either through a direct deposit form or ask for a voided check. This will help you with the following information:
- Bank account number- Available on bottom right side on the front of the cheque
- Routing number - Available on the bottom left side on the front.
- Account type
- Bank name and address
- Name of account holder
Since the account details is sensitive information, exercise care and caution while handling it.
It usually takes a few days to weeks to set it up. Once it’s set, employers can start ACH payments for direct deposit into employees' bank accounts. Every time a payment is processed, the employer's account is debited automatically and the employee's account is credited.
Benefits of Direct Deposit for
- Timely payment to employees: Employees would receive their payments on a scheduled date and do not have to go to the banks for cashing their cheque. In cases where the bank cannot process the payment before the scheduled payday, you can also initiate same day payment.
- Saves time and money: It eliminates the manual labour involved in writing and folding the checks and delivering it to the employees.
- No more paperwork: You save money on the paper envelopes, cheques and files, thereby reducing the carbon footprint of the company. You can go further paperless by providing online statements instead of paper stubs.
- It is secure: It eliminates the risk of stolen cheques or identity theft, so you don’t have to worry about reissuing the pay to the employees.
- Hassle-free: Since employees receive the payment directly to their bank account, they don’t have to wait in queues to process their payment.
- Enables remote working: Employees no longer have to be in the office to collect payments. In case the employee is sick or works from a different location and can’t be at work, it doesn’t affect their payment.
- It is secure: According to Automated Clearing House (ACH), stolen cheques are one of the common sources for identity thefts. Since direct deposit payments are done directly to the bank account, employees no longer have to worry about stolen cheques and forged signatures.