Processing payroll is a necessary part of managing your own business, but there are ways that you can make this routine chore a bit more bearable. One way that many companies choose to go about simplifying the process is by enrolling in direct deposit payroll. This method of paying employees can save your business both time and money, as well as many other benefits.
If you’re thinking about enrolling in direct deposit for your business, here is everything you need to know about the advantages and disadvantages of the service:
Understanding Direct Deposit Payroll
Before deciding whether direct deposit payroll is the right fit for your business, it can be helpful to have an understanding of what it actually entails. The process of setting up direct deposit can be relatively straightforward and simple if you have your accounts in order.
Direct deposit simply means that salaries will be transferred from your payroll bank account into the personal accounts of your employees. All you have to do is set up a bank account where you want all salaries and wages to be withdrawn from.
Employees are responsible for getting you their personal bank account information. Once you input that data into the system, they can start to have their paychecks deposited directly into the account that they gave you the information for. It’s a more convenient way to handle payday for both the employer and the employee. Direct deposit is quick, easy, and secure for everyone.
Benefits of Direct Deposit Payroll
Besides the simplicity and security of issuing direct deposit payments, business owners need to know all of the other benefits that come with this payment method. There are real benefits to employing this method of payment for employees, so let’s take a closer look:
No More Paper Cheques
While it might seem like a relatively minor expense, the cost of purchasing paper cheques for all your employees can definitely add up. This is especially true for mid to large-sized businesses that have many employees. If you pay your employees weekly or biweekly, you might need to replace the cheques with some regularity. This can be an unnecessary line item on your budget at the end of every month.
In addition to saving money, direct deposit payroll can also save you time. Once you’re set up with a payroll provider, there will be very little that you need to do to ensure that your employees get paid. You’ll have to review the salary and wages to confirm that your employees have earned their paychecks, but it can be a very hands-off process as a whole.
Compare this to the biweekly practice of sitting down at your desk to print physical cheques. This can be an extremely time-consuming endeavor, and time truly is money. On the other hand, you could finish your payroll with just a few clicks of a mouse. Alternatively, you could completely outsource it to a CPA in Winnipeg.
Improved Financial Picture
One of the benefits of direct deposit is that you can see exactly where your business stands at any given time. From the moment those funds are transferred out of your bank account, you have a very clear picture of what your finances look like in the here and now. As a business owner, you can view your transactions, generate accurate financial reports, and view your cash flow almost immediately.
On the other hand, issuing paper cheques means that you have to wait for each cheque to clear prior to running any of these reports. This can cause a bottleneck if some of your employees hold onto their cheques because they don’t have time to run to the bank just yet.
No More Stolen Cheques
While it may not happen often, your employees might sometimes come to you because their cheque has been lost or stolen. This can lead to identity theft and should always be taken seriously. With direct deposit, you no longer need to reissue those lost paychecks because the money transfers directly to their bank account.
In a similar vein, you also reduce the risk of someone stealing the identity of your employees. Business owners no longer need to store their payroll records on-premises. Instead, everything is hosted in the cloud and can be viewed securely at any time from any location. This is a benefit for both employees and employers.
Convenience for Employees
Perhaps the biggest advantage of direct deposit payroll is the convenience for employees. They no longer have to make a special trip to the bank to deposit their cheque, and they don’t have to worry about misplacing this integral piece of paper. Employees also get paid by the company on the proper day, even if they aren’t in the office. It’s rare that direct deposit is late, so these employees can count on the payroll going through in a timely manner.
Disadvantages to Direct Deposit Payroll
While there are some excellent benefits to choosing direct deposit payroll for your company, there are also times when it may not be the best option. Here are a few of the disadvantages that you will want to weigh before making the switch:
Inability To Stop Payment
Did you realize after the fact that you made a mistake when putting in payroll? Maybe you entered one too many zeroes or put the decimal point in the wrong place. On a paper cheque, you can always stop payment. However, this is not an option when you’re set up for direct deposit. This can be a huge hassle and could lead you to overdraft your account if you aren’t careful when calculating what you owe your employees.
Must Adhere to Deadlines
While you may be able to rearrange your schedule to print paper cheques at any point during the day, direct deposit often has to be entered by a specific time. To get funds out on the designated payday, organizing your funds is time-sensitive.
Make sure that you always allow yourself or your accounting staff enough time to verify hours and attendance before inputting the data into the payroll system.
Inability To Change Banks Easily
Once you’re enrolled in direct deposit with a specific bank, it can be extremely challenging and time-consuming to change banks later on down the road. Not only will you have to enter all new information into your accounting software, but you’ll also need to collect bank account details from your employees all over again. You’ll need new authorization forms from everyone to get set up with a new bank.
If you’re thinking about setting up direct deposit payroll, then you should ensure that you’re very satisfied with the bank you’re currently using. If not, it would better to switch before you have direct deposit set up .
Bringing in Help
Are you ready to enroll in direct deposit payroll but aren’t sure how to go about it? Compass Accounting has experienced professionals who can walk you through every step of the process. Start taking advantage of the benefits of direct deposit payroll right away by giving us a call to see how we can help!