Over 90% of American workers receive their pay via direct deposit. While many larger corporations have made direct deposit pay their standard policy, that doesn’t mean small businesses can’t pay their employees this way. In fact, if you’re a small business owner you may find direct deposit has its advantages.
Here’s everything you need to know about providing direct deposit to your workers, and five big benefits it delivers.
1. It’s Convenient
Paying employees with direct deposit is incredibly convenient for both you and your staff. No longer will you have to print and mail (or distribute) physical checks, although you may choose to give employees a paper record of their payment by using a free pay stub generator. Most direct deposit systems allow employees to log onto an online account to keep track of their pay and vacation time.
Your employees won’t have to take a physical check to their bank and fill out a form to deposit their money. And the money will already be available in their designated account on payday. You also won’t have to wait for all of your employees to cash or deposit their checks when balancing your finances.
When a staff member is out on vacation or sick, they’ll still receive their pay and you won’t be stuck holding onto a paper check until they return. Direct deposit can save you and your workers a lot of time and added work.
Your workers also don’t have to be classified as W2 employees to receive direct deposit. You can use it to pay your independent contract workers as well, and even any vendors you have a relationship with.
2. It’s Secure
Paper checks can be lost or stolen. Direct deposit helps prevent fraud and theft by securely depositing the money into an employee’s bank account.
83% of American workers believe direct deposit is a secure method of payment. So when you offer it to your staff, you’re giving them another perk to help them feel more secure and confident.
3. It Saves Money
There isn’t a single business owner who doesn’t want to save more money. Direct deposit eliminates the need for added expenses physical checks require such as postage and mailing supplies. Even if it costs a few dollars per check to prepare and mail it, that can quickly add up even if you employ a few dozen staff members.
4. It’s Better For the Environment
Printing and mailing checks contribute to the world’s greenhouse gas production. Physical check printing for a small staff requires paper, fuel, and wastewater production.
Even if you’re not running a “green” business, you can contribute towards helping the environment by investing in direct deposit. This is another major reason why large companies no longer offer paper checks—you can imagine how much waste would be generated by big brands such as Google and Apple if they issued physical checks.
5. It Gives Your Employees Financial Management
Direct deposit is more flexible than most people might think.
Your workers have the option of splitting their payment into more than one account. This can help them save more money then they would if they had a physical check since they might be more tempted to cash it instead of setting aside money.
If they change their mind later and wish to allocate more funds to another account, it’s easy for them to request it.
Disadvantages of Providing Direct Deposit
There’s a lot for small business owners to love about direct deposit, but it’s not perfect. There are a few cons to offering it that you’ll want to consider before making the switch.
It’s Not Free
While you’ll save some money by not printing and mailing physical checks, you’ll still need to pay a fee to set up direct deposit for your business. Depending upon your bank, that fee may range anywhere from $50 to over $100.
There may also be a transaction fee per employee, per check. It’s important to shop around various banks to see what they offer small businesses and always read the fine print so you’ll know what you’ll be charged each month. Usually, the bank will offer direct deposit software at no extra charge.
You Need to Submit Info on Time
Direct deposit is not a “set it and forget it” system. You’ll still need to determine each employee’s payment and enter it into your software system by a deadline date so their pay will be available to them on payday. Otherwise, you can end up with unhappy workers.
Keeping track of workers’ attendance records and any vacation or sick time used is important. You’ll also need to collect each employee’s bank and account information when setting up direct deposit or when you hire a new worker. This will have to be manually entered into the system.
It Requires Added Online Security
While direct deposit eliminates employees’ worries about having a paper check lost or stolen, it can be easy for someone to hack into the online system if the proper security measures aren’t taken. The responsibility falls on you as a business owner to make sure every employee’s bank and personal information is safe.
The good news is online hacking of direct deposit software doesn’t happen all that often. The bank you choose for direct deposit should have the highest level of security built into the software.
Also, if you switch banks, you’ll need to set up your direct deposit payment system with your new institution.
The Pros of Direct Deposit Outweigh the Disadvantages
Even though direct deposit isn’t completely foolproof, the pros outweigh the downsides and your employees are likely to be much happier about having it. Do your research when choosing a bank that can set it up for you to make sure providing direct deposit is the right choice for your small business in the long run.
Tech Stuffed has plenty of resources to help small business owners succeed. Visit our Technology section for more tips on how to operate your business.