If you want to deposit your employees’ paychecks directly into their bank accounts, you need direct deposit. Direct deposit is a convenient payment method for employees, who receive their paycheck quickly and securely on payday. Most employers handle direct deposit through their payroll software.
Payroll services calculate employees’ wages, taxes and deductions, and take-home pay. You can deposit the pay into your employees’ bank accounts or print paychecks directly from the software.
Payroll services make direct deposit an easy process. However, you might still have questions about direct deposit. Find out how payroll services handle direct deposit, how to choose a direct deposit payroll service, and more.
What is direct deposit?
Ninety-three percent of employees receive their wages via direct deposit. But how exactly does it work?
Direct deposit is an electronic funds transfer (EFT) between bank accounts using the Automated Clearing House (ACH). In payroll, the funds leave the employer’s business bank account, and the employee receives them in their bank account(s).
Employers must first set up direct deposit. You can set up direct deposit through a bank or payroll service. You’ll need to provide business information (e.g., business account number) and collect employee bank account information.
After you set up direct deposit and the provider approves it, you can run direct deposit payrolls.
Benefits of using direct deposit
Direct deposit has several advantages for both employers and employees.
The benefits of direct deposit for employers include ease of use, convenience, money savings, and security. You don’t need to buy supplies, like check stock and ink, to print or handwrite paychecks. You can pay employees from anywhere, even if payday falls on a day you’re (gasp!) on vacation.
Many employees also prefer direct deposit because of its convenience. Employees receive their paychecks anywhere without going to the bank. Typically, employees can also choose to deposit their paychecks in more than one account. For example, an employee might set up their direct deposit so $1,500 goes to checking and $500 goes to savings.
Can payroll services handle direct deposit?
Direct deposit is a feature most payroll services offer. Businesses that use payroll software can run payroll and pay employees with direct deposit in just a few clicks.
Typically, you can set up direct deposit directly in their payroll account. After you apply for and set up direct deposit, the payroll provider handles the electronic funds transfer between banks. All you need to do is run payroll.
The payroll provider calculates taxes and deductions to find how much to deposit in each employee’s account. The payroll software then removes the funds from your account and deposits the money into your employees’ accounts.
Most business owners prefer to use payroll software that handles direct deposit. You can automate the direct deposit process and enjoy other payroll software features.
Benefits of handling direct deposit through payroll
A few benefits of using payroll services to handle direct deposit include:
- Free: Some payroll providers offer free direct deposit. You do not need to pay any setup or transaction fees.
- Efficiency: You can save time processing direct deposit payroll from your software account.
- Accuracy: The software calculates and deposits the employee’s pay so you can avoid calculation errors.
- Security: Payroll and direct deposit involve sensitive information, like employee bank account numbers. The software should have processes to protect this confidential information.
- Pay Stubs: The software automatically generates payroll details after you run payroll. Employees can access their pay stubs immediately from their employee portals.
- Bonuses: If you want to give employees bonus payments, you may be able to run a special payroll that grosses up the bonus for taxes. After you approve it, the software can deposit the bonus into employees’ bank accounts.
In addition to direct deposit, payroll services have other time-saving features to streamline your payroll process. Other payroll software features include payroll reports, the ability to pay contractors with direct deposit, and time-off accruals.
How to choose a payroll service that handles direct deposit
Many payroll services offer direct deposit. So, how do you find the best one for your business? There are a few factors to consider.
1. Fees
Some payroll services provide free direct deposit, meaning you do not pay setup fees or per-deposit fees.
Before signing up for a payroll service, understand their direct deposit fees.
2. Deadlines
Payroll with direct deposit requires that you run payroll a certain number of days before payday. When does direct deposit go through?
Your payroll provider determines your deadlines for running payroll. For example, a 4-day direct deposit requires that you process payroll at least four days before the pay date. A 2-day direct deposit requires you to process payroll at least two days before payday.
Keep in mind that bank holidays delay direct deposit if you do not run payroll earlier than normal.
3. Interface
How easy is it to run payroll and enjoy payroll direct deposit? Some payroll services have a higher learning curve than others. Look for payroll software that is straightforward to use.
Consider signing up for a demo or free trial if available. That way, you can see how easy it is to run payroll.
How to set up direct deposit with your payroll service
Once you sign up with a payroll provider, you can start setting up your direct deposit directly in your payroll account. Keep in mind that you must have a business bank account for payroll direct deposit.
To set up direct deposit, you typically need to:
- Provide personal information
- Provide business information
- Upload a bank statement or letter from your bank
- Verify your business bank account through a test deposit
- Submit your direct deposit application
Some providers require additional information, like proof of your Federal Employment Identification Number (FEIN). Ask your payroll provider for specific information they require to set up direct deposit.
After the payroll provider approves your application, you can set your employees up for direct deposit.
Collect and enter each employee’s name, bank name, and bank account and routing numbers. Employees can enter this information if your payroll software offers an employee portal. Or, you can ask employees to complete a paper direct deposit form.
Is payroll software with direct deposit right for your business?
Payroll software is a popular way for employers to handle direct deposit. First, you need a business bank account to apply for direct deposit in your payroll platform. Once the provider approves you, you can enter your employees’ direct deposit information.
Each payroll run, the software calculates employees’ take-home pay and deposits the amounts. It’s as easy as that!
Before choosing a payroll provider with direct deposit, consider fees, payroll deadlines, and whether the system is easy to use.
Patriot’s payroll software offers free direct deposit
Patriot Software offers award-winning online payroll with free direct deposit. Employers can pay employees with free 2-day (for qualifying customers) or 4-day direct deposit.
If you have an employee who wants to be paid by check, you can also handwrite or print checks directly from the software.
You can explore Patriot’s payroll services with a no-obligation demo, or get started with a free trial today!
This is not intended as legal advice; for more information, please click here.
