The Advantages of Payroll Direct Deposit

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    • Eliminate live checks with direct deposit.check book image by Rob Hill from Fotolia.com

      The Social Security Administration's "Social Security Direct Deposit and Check Statistics," dated June 2010, reveals checks and direct deposit payments made to related beneficiaries in the United States. Direct deposit payments ranked between 70 and 93 percent; check payments accounted for the remainder. Obviously, the advantages of direct deposit are many.

    Simplicity

    • Direct deposit is easy for employers and employees to set up. The employer simply needs to let its bank know it would like to offer its employees the service. In most cases, employees must complete a standard direct deposit form, indicating their bank account and routing number, and attach a voided check. Typically, direct deposit takes one to two pay periods to begin.

      Direct deposit creates less confusion during payroll processing; only pay stubs typically need to be printed with direct deposit, and no paychecks need to be signed. It also simplifies account reconciliation. The account statement for checks requires individual check reconciliation, but direct deposit statements shows the total dollar amount for all transactions, simplifying reconciliation.

    Safety

    • Direct deposit is safe and secure; the payments do not get lost or stolen. The process involves using an ACH system, which credit unions and banks use to transmit and receive payments regularly. The payroll person electronically sends the direct deposit file to the bank; the latter confirms its receipt and ensures it's ready for payment. Since no paper checks are involved, direct deposit lowers the likelihood of forgery, stolen checks and counterfeit.

    Convenience

    • Employees usually have to wait until payday to cash live checks. Direct deposit files are usually sent to the bank a day or two in advance. This advance processing sometimes results in employees receiving their pay a day before the actual payday. Additionally, when the payday falls on a weekend, employees with direct deposit receive their pay on the business day preceding the weekend.

      Direct deposit saves employees from having to make trips to the bank to cash their checks, increasing productivity at work. Furthermore, employees can easily control and allocate the monies going into their various accounts; employers usually allow employees to set up more than one account for direct deposit.

    Save Money

    • When depositing a live check, the employee might be tempted to withdraw monies simply because he or she is already at the bank. Direct deposit limits this temptation. Furthermore, direct deposit saves employers money spent on buying paper checks and the special toner needed to print them. Notably, employees with direct deposit can manage without a pay stub, but employees without direct deposit must have a live check.

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