Setting up direct deposit for your organization puts a simple process in place that transfers payroll funds electronically from your business checking account into each employee’s account at his or her own financial institution.
According to a 2018 survey completed by the American Payroll Association, approximately 93% of American workers are paid using direct deposit via the Automated Clearing House (ACH,) a safe electronic network for financial institutions in the United States. The majority report liking the service because it gives them greater control of their finances. Participants also feel direct deposit helps them pay their bills on time due to faster access of their pay.
Direct deposit does more than just encourage financial wellness among employees, it also results in several advantages for employers.
What are the benefits of direct deposit for small businesses?
Small businesses can experience various benefits by setting up direct deposit for their employees. Here are some of the advantages employers realize:
- Greater security
- Reduction in risk – since employees’ pay is sent to their preferred financial institutions via the ACH network, businesses drastically decrease the occurrence of check fraud and lost or stolen checks because account numbers remain confidential
- No delayed check cashing or lost checks
- Time and cost savings
- Improved cash flow
- Greater control and predictability regarding payroll and its corresponding expenses
- Immediate online transaction reports
- Added perk to employees
How else can direct deposit be used?
In addition to issuing paychecks, business owners can set up customized payments to employees, or accounts associated with them, for any of the following:
- Employee business expense reimbursements (mileage, meals, etc.)
- Child support payments (or other garnished wages)
- Bonuses and commissions
- Health Savings Account (HSA) contributions
- 401(k) contributions
With the help of automation, these types of deposits are often processed more quickly than traditional methods that depend on multiple manual forms and time required to route for approval. Direct deposit means everything is handled online, making it a streamlined process.
Can small businesses make direct deposit mandatory for employees?
Federal law puts some restrictions on businesses making direct deposit mandatory for their employees. Businesses can only instruct their employees to set up direct deposit if one of two conditions is met. Either 1) each employee is allowed to choose the bank that will receive his or her direct deposit paycheck, or 2) the business owner may choose the bank but another form of payment must be available to the employee. States also can put their own laws in place regarding mandatory direct deposits. In Wisconsin, the law is that mandatory direct deposit is allowed IF:
- The employee is able to collect his or her wages at a bank or facility in the state of Wisconsin
- The employee receives all of his or her wages and is not made to incur any charges to receive them. If an employee uses an existing bank account, generally, this will cause no issues. If an employee does not bank and has to establish an account solely for the purpose of receiving wages, all fees must be covered by the employer
It doesn’t matter if your company has 5 or 500 employees - using direct deposit can create efficiencies that allow you to spend more time focusing on meeting your customers’ needs. Your bank can help you get set up online and train you or members of your staff on how to use the platform. If setting up direct deposit is something you’d like to explore for your Wisconsin business, contact the Investors Community Bank Treasury Management Team to learn about the next steps and how to get started.
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