Why spend valuable time visiting the bank? Direct deposit is an easy way to have electronic deposits without worries. In this article, we will look at how to set up a direct deposit account. Plus, it’s much faster than paper deposits, giving you access to your money on the day of the deposit.
As a small business owner, you are responsible for many different elements of your operation. In addition to having to take care of inputs and outputs when running your business, you also need to manage your employees, which includes paying them.
What is a direct deposit?
This is an electronic payment from one bank account to another. For example, money can be transferred from an employer’s bank account to an employee’s bank account, although there are several other ways to use a direct deposit.
How does a direct deposit work?
If we look at the specifics of the direct deposit process even further, then the included steps look like this:
- As an employer, you will start a direct deposit at your bank (we will explain exactly how to do this later).
- Your bank will take overall direct deposits, pack them together and send them in batches to the ACH at regular, pre-determined intervals.
- ACH will receive direct deposit orders and send them to the banks of all your employees.
- These banks will receive orders and credit your employees’ accounts accordingly. After the amount is credited to your employee’s account, the corresponding amount will be debited from your account.
An important thing to note about this process is the exact timing, which may also depend on your bank, your employee’s payroll software, the software you use, and any public holidays that affect banking operations.
Don’t worry, though, your payroll software or bank will help you plan your payroll plan and the appropriate direct deposit schedule that works best for you.
How to set up a direct deposit for employees
Now that we’ve gone through what a direct deposit is and how exactly it works, we’ll go through it step by step on how you can set it up for your employees.
Step 1: Opt for a direct deposit provider
The first thing you need to do when setting up a direct deposit for employees is decided who will provide the services.
In principle, it is the entity that will process and store all information about your company and your employees, and ultimately it will be the one who will receive the funds through the direct deposit process outlined above.
There are generally two options for direct deposit providers. You can work with the bank where your business bank account is stored, as well as with any other business accounting.
Each of these options will give you the ability to send payments electronically through it.
Step 2: Start the installation process
If you decide to set up a direct deposit through your bank, you can talk to him directly about options, pricing information, and details on how to get started.
Your bank can request current financial statements just to verify that you have the necessary funds to set up the process.
If you use payroll software, on the other hand, much of what you need to get started will be integrated into the platform, and the information you provided when setting up your account with that software will help.
If you are setting up your payroll software for the first time and making a direct deposit, you will need to enter your bank account information. It will be the account from which your direct deposits will be drawn.
Finally, your provider will take the test and withdraw a small amount of money from your account. You will then verify this transaction with them and confirm that the process is working.
Step 3: Gather information from your employees
After initiating the direct deposit process with the selected provider, your next step is to gather information from your employees.
From your employees you will need:
- Their bank account number
- Bank account type (check, savings)
- Bank routing number
- Name of the bank
In addition to this information, you will need your employees to sign an authorization form stating that they are giving you access to the fund’s transfer ( payment ) electronically.
There are forms that you can adapt to your business and that allows your employees to provide all this necessary information in one form. Here you can find an example.
If you use HR software that has employee registration, your employees can log in themselves and fill in the relevant information and grant direct deposit authorization directly in the software. In this case, the information will be automatically attached to your payroll.
Step 4: Enter employee information into your system
Now that you have gathered all the necessary information from your employees, you need to add it to your payroll.
You enter the information provided by your employees into your corporate accounting or other payroll software.
The individual software you use should have documentation specific to this process, but in principle, you will add everything from the direct deposit authorization form to the system.
You enter all the information for your employees listed on their direct deposit authorization form and save it to the system. After creating this batch, you will be able to send them a payroll.
Step 5: Create a plan of direct deposits and wages
Once you have all the relevant information in your direct deposit provider’s system and you have gone through the authorization process, you should be ready to get started.
You should be aware that a direct deposit may take 7-10 days to be officially set up with your provider. Then you would not want to start setting up a direct deposit a few days before you intend to pay your employees.
You may already have a repayment schedule, but you’ll want to check with your bank or payroll service again to make sure your current schedule is on track.
Remember to communicate your schedule with your employees and payroll administrators. You will want to set a cut-off date for your employees to submit hours or timetables so that you have enough time to check and subsequently process your direct deposit salaries.
Step 6: Run the payroll
Once you have everything set up and verify the activation of the direct deposit using your banking or payroll software, you can leave.
You can start your payroll according to the schedule you specify, and your employees will receive your direct deposit payments.