Direct Deposit: Should You or Shouldn't You?


Signing on with a small business payroll service like BenefitMall means making choices about how you want payroll processed. Among those choices is how employees will actually be paid. You can pay via paper check, direct deposit, cash, and even payroll cards in some cases. In this post, we will address the direct deposit option.

Payroll services offer direct deposit because it is one of the safest and most convenient ways to pay employees. But it is not the only way. Whether your company would choose direct deposit or not would depend on several factors, as explained below.

1. Employee Preferences

While direct deposit is certainly beneficial for the employer, most of its benefits are enjoyed by the employee. Therefore, the first consideration is employee preference. It would not make sense to set up direct deposit if the vast majority of workers either did not want it or had no way to access it. Restaurant payroll comes to mind here.

Another thing to consider are state laws relating to mandating the direct deposit option. Some states do allow employers to require their workers to accept direct deposit payment while others do not. States that do not allow direct deposit mandates require employers to offer enough options to satisfy all their workers.

2. Direct Deposit Fees

It is rare for banks to charge their retail customers for payroll direct deposits. On the other hand, fees assessed on employers are common. Banks typically charge direct deposit set up fees that can be upwards of several hundred dollars. There may also be transaction fees involved as well.

It is important to understand that employer fees cannot be passed onto employees. A company's workers must receive every penny due them. That means any and all employer fees have to be absorbed as a cost of doing business.

3. Convenience of Payment

The next thing to consider is the convenience factor. Direct deposit is convenient for both employer and employee, though for different reasons. From the employer's standpoint, it is a lot more convenient to click a button to initiate electronic funds transfers than to print checks manually. Direct deposit can be completed in mere seconds while printing paper checks takes considerably longer.

Direct deposit is convenient for employees inasmuch as they do not have to go to the bank to deposit or cash a check. Their money is waiting for them on pay-day with no additional effort required by them. They can access their pay through cash withdrawals, checks, and their own electronic transfers for paying bills.

4. Payroll Processing Schedule

Last is a company's payroll processing schedule. When you sign on with a small business payroll service, your service provider will ask you whether you want to process payroll weekly, biweekly, or semi-monthly. Whatever the choice, your company has to have systems in place to ensure that data is collected and entered in a timely fashion so as to facilitate direct deposit on time. Otherwise, direct deposits may be late.

Payroll processing schedules are usually not a problem for most employers. There are some industries where it can be, though. Construction payroll is a good example. If payroll processing schedules are not reliable, direct deposit is probably not a good option.

It goes without saying that direct deposit has its pros and cons. If you have any questions about direct deposit or how one of our online payroll solutions might benefit your company, do not hesitate to contact us. BenefitMall is here to help you streamline payroll processing with a full range of customized solutions, tools, and services.