Payroll Direct Deposit - Frequently Asked Questions

Most companies offering payroll administration services have the payroll direct deposit payment or distribution option among its features. Direct deposit is widely used in the United States and there is a trend to in the payroll outsourcing industry that makes direct deposit the premium mode of funds transfer. The Internal Revenue Service even allows the refunds via tax deposits. Direct deposit may also be used for unemployment compensation and social security services and benefits.

What is Payroll direct deposit?

Payroll direct deposit is the system of electronically transferring the funds to the checking or savings account of the employee, eliminating the hassles of paper checks. The employee is supposed to receive a pay stub though. The paper stub contains information about the gross amount of pay and information about withholding taxes deductions and other deductions and the net amount. As a matter of fact, a detailed pay stub is a requirement in some states.

What are the advantages of using direct deposit?

The best thing about direct deposit is the speedy processing. This means that the employer gets to receive his money faster than it would have taken paper checks. This is an excellent payment option for those who are not located near participating banks or if the employee cannot easily process checks during the day. Direct deposit is also appealing to those are concerned bout the environment because it reduces paper usage and carbon footprint. By using direct deposit, the business process also becomes more streamlined, so, there is no need for you to request about payment stoppage on the event of lost checks, so the employees get to focus on other vital aspects of the business. Another advantage is that direct deposit also costs less that processing payment through checks.

How flexible is direct deposit?

A lot of people are reluctant to use direct deposit, on account of overspending. However, it is possible to arrange for a certain amount to be forwarded to a savings account. It can accommodate any schedule and virtually any arrangement, including setting up the debit version of the deposit, where you get to pay electronically for bills as well.

How do you set up direct deposit?

The first thing you need to do is find out about states laws. This is because even though payroll direct deposit is widely used and advantageous to businesses, majority of states still require that direct deposit be merely voluntary. Stipulations may not be clear. There should be various options for payment and while you should not prohibit individual employees from participating in a payroll direct deposit system, there should be options for them other than direct deposit too. Some states even require companies who do direct deposit to release what is called a statement of wages so that the employees will know about itemized deduction information. After that, you need to establish a direct deposit relationship between the bank of your choice and your employee's choice. Some banks require a minimum number of participants and some require electronic capability. When you outsource payroll though, the payroll company will take care of this aspect and they have already established contacts and they can easily make arrangements for you.