In our electronic age, the days of paper paychecks are slowing down. Payday with a paper paycheck is awesome but it also means that you have to guard that check like a winning lottery ticket until you deposit it in the bank. And if you want to access that money quickly you need to head to the bank after work on a Friday evening and stand in line with everyone else only to be told the money won’t appear in your account immediately.
We call this “Payday-Delay” and it really should be a relic of the past.
Direct deposit, or EFT (Electronic Funds Transfer), is great for employees and it is much easier and affordable for employers. If your organization is still handing out paper checks as it’s primary salary-delivery vehicle, consider the benefits of direct deposit (your employees will thank you).
What are the benefits of direct deposit or EFTs to me as an employer?
- Saves staff time from printing checks, reissuing checks or reconciling bookkeeping records if an employee hasn’t deposited their check in a timely fashion.
- Makes it easier for you to stay in compliance with unclaimed property laws if employees don’t deposit their checks.
- Saves on postage and printing costs.
- Unlike manual checks you don’t have to worry about EFTs getting lost or stolen.
- Easier, immediate financial reporting through the transfer of payroll funds.
Can I require direct deposit for my employees?
The quick answer is it depends on which state you’re in. (The Society for Human Resource Management has some great resources on labor laws by state for its members.) We’re based in Tennessee, where private employers of five or more employees can require direct deposit but it doesn’t mean there aren’t some parameters which vary by state and may include:
- You can’t mandate which bank an employee uses.
- You cannot 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.)
What if I am met with resistance to EFT?
As a business owner, you may run into an employee who is “unbanked” meaning, that the employee has no bank account.
According to the Federal Deposit Insurance Company’s 2017 survey 6.5 percent of households in the United States were unbanked in 2017.
This accounts for approximately 8.4 million households. These employees likely rely on alternative financial services such as check cashing, money orders or payday lenders.
People are unbanked for a number of reasons, including:
- Distrust or a bad experience with a bank such as disrespectful customer service or excessive fees.
- Confusion over rates and the benefits of maintaining an account. If English is a second language that can be another barrier to banking literacy and trust.
- Bank hours or locations are inconvenient, especially for people working multiple jobs or shift work,
- An inability to meet the balance requirements due to lack of money or an inability to establish an account due to a negative financial history such as bounced checks.
One option for paying unbanked employees is a paycard, which employers can preload with wages. Employees can use the card like a debit card to make withdrawals. The downside to paycards is that they often incur fees like ATM fees, replacement fees or balance inquiry fees. Also if a bank issues cash in dominations like twenty dollar bills for example, the employee might not be able to withdrawal their entire pay.
In Your Corner
We’d love to help you get direct deposit set up (if you don’t already have it) and organize all of your payroll tasks. Paperless means more time and less paper cuts, so set up a call today to see how we can help!