Direct deposit is a payroll option worth exploring for any business that has not done so. While many businesses and employees find it to be a convenient way to handle paychecks, there are several factors worth taking into consideration. Here are some pros and cons to using direct deposit to pay your employees.

Cons

Payroll must be submitted early

One drawback to using direct deposit is that payroll must be submitted early to ensure checks are paid on time. For example, you must have it submitted by the end of the day on Wednesday in order for payments to appear in employees' accounts on Friday.

Cash flow

There is also a cash flow consideration when using direct deposit. Businesses give up the "float," since with direct deposit, money leaves your account as soon as the ACH is processed, while with paper checks, it may take a day or two for all the funds to be withdrawn. This can happen when employees either don't cash their checks right away or they deposit them with another financial institution.

Employees might have different preferences

While most employees are likely to prefer direct deposit payments, it's possible that others may wish to be paid by other means. This is especially true for those who don't have a bank account. Having multiple ways of paying employees may be a burden.

Fees

Direct deposit does come with a fee, although you're paying for a valuable service that has many advantages (see below).

Pros

Time savings

You will save a great deal of time by not having someone spend time printing checks, signing them, putting them into envelopes, handing/mailing them out, etc. This frees up time for more productive tasks.

Cost savings

One of the biggest benefits of direct deposit is cost savings. Since time is money, the hours you save paying someone to process paper checks translates to lower payroll costs. And, while you do have to pay a small fee, this is likely to be offset by savings on check stock and toner used to print checks.

You can pay remotely at any time

With direct deposit, you can process your payroll at any time or any place. While you do have to have it submitted on time to ensure timely payments, you can do so 24 hours a day/seven days a week, and you can process it remotely. This is an extremely convenient feature, especially with so many people working remotely due to COVID-19.

Reduction in fraud risk

Paper checks come with several fraud risks – thieves can counterfeit your checks, alter the amount on a check, or steal a check from a wallet or mailbox. Direct deposit helps you and your employees reduce the risk of becoming a fraud victim.

Cash flow forecasting

While the cash flow issue discussed above could be viewed as a negative, it can also be viewed as a positive because the elimination of check float times means it is easier and more predictable to forecast cash flow. This may help you in the long run.

Employees often prefer it

While employee preference may also be viewed as a negative, there is something to be said for keeping employees happy, and chances are, most employees will prefer having the option to have their check deposited directly into their bank account. This is even more likely during the pandemic as this eliminates the need for employees to travel to the bank to deposit their checks.

While there are plenty of considerations to keep in mind with direct deposit, you and your employees alike will most likely be happy with the arrangement. To find out more about direct deposit, contact Nevada State Bank.

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC