Great employers are constantly seeking ways to improve the employee experience and reduce administrative expenses. One of the most effective changes is switching from paper checks to direct deposit.
Paying employees electronically helps them get paid faster and allows companies to run payroll more efficiently. It also reduces the risk of stolen paychecks and lost banking information.
Read on to learn more about the benefits of direct deposit and how your organization can offer this streamlined payment method to employees.
What is direct deposit?
Direct deposit is a secure digital payment method that lets one party transfer funds electronically to another. The term most often describes a payroll process where an employer electronically deposits an employee’s paycheck directly into their bank account. Instead of providing employees with paper checks, companies send pay electronically through the Automated Clearing House (ACH) network.
Advantages of using direct deposit for employers
Direct deposit is a popular option: Over 90% of Americans receive their paycheck electronically. Here’s how organizations benefit from offering this feature to employees.
1. Reduces costs and saves time
Direct deposit saves companies money — the cost of the software is minimal compared with the long-term costs of printing and mailing paper checks. Contemporary payroll tools also make the payday workflow more efficient. Automating payroll tasks like calculating wages, taxes, and benefits saves time and reduces errors, which means your People and Accounting teams can spend more time on high-value work.
2. Provides better records
Electronic check deposits provide companies with a clear audit trail of all payments and benefit withholdings, making it easier for your HR team to view transaction histories and verify account information. This simplifies tax reporting and helps organizations stay compliant during financial reviews. And if an employee flags a potential error, payroll personnel can quickly cross-check information without having to dig through archives in the storage room.
3. Minimizes risk
Employees sometimes lose or damage paper checks, and thieves can more easily steal them. Direct deposit reduces these payday risks by moving payments online, where organizations can track transactions and confirm completed transfers.
Direct deposit software also ensures accurate wage calculations and benefits administration. This protects companies from disputes with employees or fines for incorrect tax withholdings.
4. Streamlines global payment
Organizations with an international workforce may not have the choice to use a paper check. Some have to run payroll using direct deposit, as digital transfers are the only reliable way to transfer funds around the globe.
Modern software for People teams ensures timely deposits. Platforms like Oyster seamlessly convert currency and eliminate the long wait times for data corroboration that global transfers used to imply.
Advantages of using direct deposit for employees
When payday rolls around, employees don’t want to deal with the hassle of late checks. Direct deposit offers a fast, accurate payment option. Here’s how your organization improves the worker experience when they eliminate paper checks and switch to electronic funds transfers.
1. Saves time
Direct deposit is far quicker than sending out a check. With payroll direct deposit, people can access their funds immediately. There’s no need to visit a bank during business hours and then wait for funds to clear.
2. Gives recipients more control
With direct deposit, employees can split their paycheck between multiple accounts, like having a portion of their pay automatically sent to a savings account and the rest to checking. This feature makes it easier to build savings consistently every payday.
3. Improves financial planning
Direct deposit guarantees funds are available by a certain date. Knowing when funds will arrive makes it easier for employees to plan expenses. They can confidently set up automatic bill pay, which helps avoid late fees. Transferring funds electronically also reduces the risk of losing or delaying checks.
4. Increases security
Paper checks present a fraud risk, as bad actors can steal paychecks from the mail. Direct deposit runs through the safe ACH system and between reliable online banks, a process that uses encrypted systems and verified banking information. While electronic transactions carry some cyber risks, employers can implement strong data protection policies and use vetted, encrypted tools for payroll.
How to set up direct deposit: A quick guide for employers
Direct deposit is a secure, reliable payment system that gives employees peace of mind while reducing manual tasks for your team. Here’s how to get started:
- Contact your bank: Request information on how to set up direct deposit from your bank. If your business account supports this feature, follow the setup instructions. If not, you may need a third-party provider.
- Gather direct deposit information: Securely collect banking information from employees, including the account number, routing number, and account type. Use a trusted platform like Oyster to safely collect and store this data.
- Establish a payroll cadence: Carefully plan your payroll schedule. For example, will employees receive weekly or biweekly payments? When choosing your cadence, consider how long it takes to run payroll and how quickly your bank processes deposits.
Run payroll: With the help of your payroll software, calculate wages, benefits, and withholdings and set payment dates for your employees. You’re then ready to electronically deposit pay.
Perfect your global direct deposit process with Oyster
Managing direct deposit for employees and independent contractors worldwide is complex. Oyster simplifies the process, acting as your employee of record in over 180 countries. With its automated payroll system, you can transfer funds directly to checking or savings accounts worldwide without delay or manual errors.
Explore Oyster today and give your employees and contractors the reliable, timely payroll process they deserve.
FAQ
How long do direct deposits take?
Direct deposits generally take between one and three business days to process. Timing depends on the financial institution and payroll provider.
What’s the difference between direct deposit and a wire transfer?
A wire transfer is an electronic transaction between two banking institutions, mediated by a domestic network like Fedwire or an international network like SWIFT. People and institutions generally use wire transfers for one-off payments.
Direct deposit is also an electronic transfer between two accounts, mediated by a third party like ACH. But it’s intended for recurring payroll processing and generally has lower transaction costs.
How can employees track their direct deposits?
Employees can check their bank account online and use mobile apps for up-to-the-minute deposit information. Many HR platforms and payroll providers also send notifications on payment status.
About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
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