I remember anxiously racing to deposit my check every other Friday. The bank was about 45 minutes from my work, and it closed at five (and if you’re from the Memphis area, you know I-40 traffic from Arlington does not help).
But, my stress was half of what my manager experienced. As she waded through the daily hurdles of inventory, upset or sick employees, short staff, and angry clients, distributing checks to everyone was the least of her worries but also her biggest priority.
Direct deposit enters the chat.
For an employer or manager, it can be a lifesaver. Your employees can set up their direct deposit before they begin the first day on the job. Fret no more about missing a payroll deadline or re-living fast and furious to get the checks to your team on time.
The days of paper checks are slowing down. Direct deposit, or EFT (Electronic Funds Transfer), is excellent for your employees and much more accessible and affordable for you.
But if you’re handing out checks on Fridays and it’s never been an issue, why change? We’re going to explore the four benefits of utilizing direct deposit and if it’s a good fit for you and your business.
What are the benefits of direct deposit or EFTs?
- It saves time. If an employee hasn’t deposited their check on time, you can relieve your staff from reprinting checks, reissuing checks, and reconciling bookkeeping records.
- It helps you stay compliant. If employees don’t deposit their paper checks, you are subject to unclaimed property laws. Going with direct deposit enables you to maintain compliance with these unclaimed property laws.
- It saves you money. You don’t have to allocate spending for postage, printing, or delivery fees. According to DailyPay, it costs a business up to $2 to cut and process a hard-copy check versus 35 cents or less for direct deposits.
- It protects you from fraud. Unlike manual checks that have your bank account and routing number printed on them, you don’t have to worry about EFTs getting lost or stolen. Everything is accounted for in your HCM platform.
Can I require direct deposit for my employees?
The short answer? It depends on which state you’re in.
At Whirks, we’re based in Tennessee. This means that private employers of five or more employees can require a direct deposit in Tennessee. It doesn’t mean there aren’t parameters that vary by state, though. For example:
- You can’t mandate which bank an employee uses.
- You can’t charge employees a fee based on which payment method they use.
- Your employee has to have access to their pay stub (or the right to request another type of payroll record).
If you want to see if you can require direct deposit, check out the Society for Human Resource Management for great resources on labor laws by state.
What if my employees don’t have a bank account?
As a business owner, you may run into an employee who is “unbanked,” i.e., they don’t have a bank account.
According to the most recent National Survey of Unbanked and Underbanked households by the FDIC, over 6% of U.S. households, or a total of 14.1 million American adults, are unbanked.
If you’re in an industry with several undocumented workers, your employees may rely on alternative financial services such as check cashing, money orders, or payday lenders to receive their money.
Keep in mind that people are unbanked for several reasons:
- They’ve had a bad experience with a bank in the past, such as poor customer service or excessive fees.
- They’re confused over the rates and benefits of maintaining an account.
- English is their second language, which creates a literacy barrier.
- Bank hours or locations are inconvenient, especially for people working multiple jobs or late shifts (this is more common than you think).
- They cannot meet the balance requirements due to a lack of money or an inability to establish an account due to negative financial history such as bounced checks.
One option for paying unbanked employees is a pay card, which employers can preload with wages.
Employees can use this card like a debit card to make withdrawals. The downside to this method is that they can incur ATM fees, replacement fees, or balance inquiry fees.
Plus, if a bank issues cash in dominations (like twenty dollar bills), the employee may not be able to withdraw their full pay. Pay cards are great options for employers who want to require direct deposit, but may have unbanked employees on their payroll. Just be sure to properly educate your employees on how they can use their pay card, what fines they are subject to, so they get the maximum benefit out of their pay card.
What does direct deposit look like with a payroll provider?
Whether national or independent, most payroll providers offer direct deposit and printed checks (or a hybrid of both).
Usually, there is a fee for printing manual checks (for example, $2/check) and a delivery fee if you can’t pick up the checks and need someone to deliver them to you.
If you choose to switch to direct deposit, it is managed in your HCM platform. Employees can do things like view their paystubs and change their bank account information, and you have the ability to approve, verify, and process payroll in the same platform.
Direct Deposit is time-sensitive, so reconciling time and submitting payroll is imperative to pay your employees! At Whirks, we get paid semi-monthly. If payroll isn’t submitted two days prior, our team won’t get paid.
If you don’t have an employee dedicated to processing payroll for your staff, or you often forget to process payroll, making the switch to direct deposit can ease the frustration of printing checks, paying delivery fees, or paying late fees to get checks delivered on time. One missed payday generates distrust and frustration among your team, while two missed paydays usually means employees will start looking for different jobs.
Always choose what’s right for you.
What’s your industry? How many employees do you have? Will this feature help or hurt you?
Even though direct deposit is the most popular method of getting paid, it doesn’t mean it will be beneficial to you and your team. (though in most cases it usually is!)
If you’re searching for a payroll provider, ensure that they offer options like printed checks and pay cards so you can accommodate all of your employees if this is a priority for you. Be sure to discuss their additional fees for printing checks and delivering them if you want that service.
Choose a partner who knows the ins and outs of your industry and can customize your services based on what you want and need. At the same time, keep an open mind to the benefit of making some changes so you can get one step better every day.
Curious about what else you should consider? Check out our Five Crucial Questions to Ask a Potential Payroll Provider.