Direct Deposit – What it is and How it Benefits Employers and Employees

Direct deposit is the electronic transfer of funds from the employer's bank account to the employee's bank account on the scheduled pay day. Usually an employee must sign an agreement authorizing the employer or the employer's payroll processor to provide payment as an electronic transaction rather than cash or check. The employee will also need to provide a verified bank account for the employer to deposit the funds. A bank account is considered verified when the employee submits a voided check or a statement from his / her bank supplying the routing number and individual bank account. The routing number is a string of nine numbers that identifies the banking institution. Some payroll processors also require a pre-note, which is an electronic transaction from the processor's bank to the employee's bank that verifies the account information. If a pre-note is required, the employee should expect a regular check the first pay and once the account has been verified by the banks, then he / she can expect the subsequent pay to be deposited directly into his / her account.

How does it help both the employer and the employee? Consider this scenario: Friday is payday, but employees will not be able to make it to the bank in time and now they are without their money throughout the weekend. As an employer, your employees are complaining because they cannot get their money when they need it and the last thing you need are disgruntled employees.

Eliminate this dilemma with direct deposit. If you are the employer, talk to your payroll company or check with your payroll software if you can offer it. Besides happily paid employees, your job just got easier and your cash flow just got a little smoother. The money comes out of your account the day it should – pay day. Instead of having to reconcile each and every paycheck, all you will have to do is match the sum of the net direct deposits to your bank account. If all of your employees switch to direct deposit, then you have just one number to reconcile! You also have a benefit to offer to potential employees which keeps you competitive in the job market.

Ask your employer if they offer direct deposit and make the switch. Your paycheck will be in your account the day it should be and you will not need to take time out of your day to go to the bank. Be sure to check with your bank on their posting times, because some banks post after noon and some even post the previous night. You will still have your money the day you need it, but you might be alarmed if you check your account early in the morning and the money is not there. Also be aware that if your account is routinely overdrawn there may be a delay on access to the funds, as per the rules of your banking institution.

Another benefit of direct deposit is the ability to deposit parts of your paycheck to different accounts. Help yourself save more by directing a percentage or a flat dollar amount to your savings account. Pay yourself first (as in put money towards your savings) and you will find you actually accomplished a savings goal. Or if you are a parent you can direct a portion of your paycheck to your child's account as part of his / her allowance.

If you do not have a bank account there are many companies out there that offer payroll debit cards. You can check with your employer if they or their payroll company is partnered with any of these companies, or you can go online and do a little research yourself. Often it is free to open an account and receive a card, but usually there are fees associated with any debit card, such as balance inquiry fees and / or ATM surcharges. So be sure to do your homework and review the fine print before signing up with any payroll debit card companies. After all, it is your hard-earned money. It is worth it to take the time to find out if you can get it in your pocket a little faster.

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