More than 50% of businesses use direct deposit to pay their employees. Direct deposit is increasingly becoming the standard method for wages in the United States. Today, many employers require their employees to sign up for direct deposit as a condition of employment. Paper checks are becoming more obsolete as technology advances. There are great benefits to both the employer and the employee when using direct deposit.
Employer Benefits
1) Cost Saving – Direct deposit is much more cost-effective than preparing a paper check, especially for companies with a large number of employees. Some of the costs associated with preparing a paper check includes purchasing ink for printers, purchasing checks, purchasing envelopes and the distribution of those checks. If checks have to be mailed or transported to another location, postage and courier fees may be required.
2) Time Reduction – According to Big Fish Payroll Services, because of advancements in technology, direct deposit is processed much faster than the traditional means of processing payroll. They say, “Payroll can now be processed with fewer employees and at a greater rate of speed. Payroll errors can usually be corrected just by gaining access to a local computer.”
3) Environmentally Friendly – Direct deposit has a positive effect on the environment. The environmental impact associated with direct deposit is extraordinary. It eliminates fuel costs associated with the transporting of ink and paper. It also eliminates the need for employees to travel to the office to acquire their pay checks and the transporting of the checks to the bank for cashing and depositing.
Employee Benefits
1) Easier Access to Funds – Funds are usually in the employees bank account the morning of payday. It allows the employee to have immediate access to their money without having to visit the payroll department. Most large companies and government agencies have funds available the night prior to the actual date of pay.
Direct deposit also eliminates the need to make multiple trips to receive cash. It also eliminates waiting at a bank or a check-cashing store during lunch. For employers who offer their employees dedicated portals, direct deposit and other payroll information can be updated electronically from the employee’s home computer. In addition, employees do not have to be in the office to receive their funds. The employee could be in another state and still have access to funds on payday.
2) Distribution of Funds – The structure of payroll has enhanced greatly within the last few years. Employees can now have a percentage of their wages deposited into their retirement, saving, or checking accounts. Many individuals have found direct deposit as being a great way to save.
3) Security – Direct deposit minimizes any criminal activity, such as stolen checks or stolen money. An employee who has direct deposit is less likely to be targeted for any type of criminal behavior. For example, multiple trips to check-cashing stores or banks could become very obvious over time.
Direct deposit has increased rapidly within the last few years, and many experts believe that it will continue to increase in years to come. There is a good possibility that direct deposit will one day be the only option for payment of wages. Both the employer and the employee receive many benefits from using a direct deposit payment system.
The cost saving, time reduction, and environmental factors are important for any business, especially a small business. Many businesses have switched to direct deposit simply for these reasons. Some business owners that have been using direct deposit for awhile refuse to go back to issuing paper checks. The security and easy access to funds are what most employees seek from an employer.
Resources: Direct deposit for federal benefits, How direct deposit works
