What Small Business Owners Should Know About Direct Deposit

We’ve come a long way since paper paychecks. Thanks to direct deposit, your employees no longer need to head straight to the bank on payday slot deposit pulsa.

While direct deposit is a safer, cheaper, greener, and often more efficient way of paying employees, it’s not without the occasional problem. Because of how important it is to pay your employees accurately and on time, small business owners must understand how direct deposit works and whether it’s right for their businesses.  

What is direct deposit?

Direct deposit is the electronic form of a paycheck. It’s an electronic transfer of funds from an employer’s business bank account to an employee’s account at a bank or credit union. It’s also known as an automated clearinghouse (ACH) transaction. This process requires the employee’s bank account number, routing number, type of account, bank name and address, and the names of the account holders.

Direct deposit isn’t just for paying wages. “It is also used for tax refunds, retirement benefits, expense reimbursements, investment distributions and insurance claim payments,” said Heather McElrath, senior director of communications at the National Automated Clearing House Association (Nacha).

What is Nacha?

Nacha is the National Automated Clearing House Association, also known as the Electronic Payments Association. This nonprofit manages the ACH Network, which processes and moves trillions of dollars every year. For example, the ACH Network moved 26.8 billion payments, valued at $61.9 trillion, in 2020. These transactions included direct deposit, Social Security, government benefits, electronic bill payments, and person-to-person and business-to-business payments.

The ACH Network creates the grid for all American financial institutions to safely transfer money from one bank account to another. Nacha is not a government agency, but it works directly with the Federal Reserve, state banking authorities and the Treasury Department. Nacha has its own rules and code of ethics that ensure business is conducted fairly and with as little risk as possible.

How to set up direct deposit

A small business owner can set up direct deposit in five basic steps. Ultimately, the process will run through a payroll provider or bank, which brings us to the first step.

1. Choose a direct deposit payroll provider.

You will need to set up payroll services. When shopping around for the best online payroll solution, pay close attention to the services offered, the fees and several other components of direct deposit management. You can always start by inquiring with your existing bank. They likely manage direct deposit, and their terms and fees can give you a baseline when you compare your options.

2. Review federal and state laws on direct deposit.

Before implementing direct deposit for your business, take into account federal and state laws regarding the process. The complete rules regarding electronic funds transfer payroll payments can be found in the Electronic Fund Transfer Act (part of the Comptroller’s Handbook). These are a few of the federal law highlights:

  • An employer has the responsibility to provide each employee with consent and direct deposit authorization forms.
  • An employer must collect the employee’s bank information, including bank name, account type, and routing and account numbers. The employee’s signature must be completed on the above forms.
  • Although the employer may require the employee to accept direct deposit (depending on the case and state), the employee can choose the financial institution to receive said payments.

States are allowed to impose additional requirements for direct deposit. While some states require employers to follow federal laws only, most states have supplementary stipulations.