Business March 16, 2020 Last updated March 16th, 2020 1,335 Reads share

Direct Deposit: What Business Owners Should Know

Image Credit: DepositPhotos

Thanks to direct deposit, paper paychecks are no longer needed. On paydays, employees do not need to go to the bank just to get their salaries. However, even though a direct deposit is a much greener, more affordable, safer, and sometimes more efficient way of giving salaries to your employees, it comes with risks, as well.

And since it is important and crucial to pay your employees on time and accurately, business owners need to understand and learn how direct deposit works and if it fits for their business. 

Here’s a quick, direct deposit guide for business owners. 

What Is a Direct Deposit?

A direct deposit is simply a paycheck but in the electronic form. By that, we mean, it is an electronic transfer or deposit of money from the business bank account of an employer to the account at a credit union or bank of an employee. 

Alternatively, direct deposits are known as automated clearing house transactions. This electronic transfer of funds requires the bank account number of the employees, as well as their address, bank name, type of account, and routing number. Plus, the account holder names on the account.

Moreover, a direct deposit is not only used for paying salaries. In fact, it can be used for insurance claim payments, investment distributions, expense reimbursements, retirement benefits, and tax refunds. 


In terms of efficiency and speed, a direct deposit has tons to offer. Therefore, proving to be a gainful and lucrative option for both the employer and employees. The following are some of the pros of direct deposit:

Excellent For The Environment

Of course, the environment is dear and valuable, and when we mentioned earlier that direct deposit is a green option, we mean it. 

For example, a small business that has ten employees and pays them semimonthly makes use of at least 11 pounds of greenhouse gases annually.

This number is analogous to at least 40 miles in your vehicle. So, let’s say that the same company switched to direct deposit, then it’d save about 36 gallons of wastewater, 4 pounds of paper, 5 pounds of solid waste, and 2 gallons of gas, according to Wagepoint. 

Supports the Financial Health of the Employees

The electronic transfer of funds enables your employees to automatically divide their salaries into their accounts. It means that employees can put a fixed or direct amount of their salaries into an investment or savings account to build their nest egg. Thus, businesses can support the financial health of their employees through the use of a direct deposit.

More Secure

When compared to paper checks, a direct deposit has the upper hand because it is more secure than paper. Keep in mind that paper checks are likely to be counterfeited, stolen, and lost. According to the Nacha survey, direct deposit is considered as more secure by 83 percent of employees. 

Save Business Time and Money

Direct deposit helps businesses to save money by getting rid of manual check preparation. And because there’s no need for mailing supplies and postage, business owners can save at least 3 dollars per paper check.

Other than that, it can also help business owners save time. With the electronic transfer of money, you don’t have to print and mail paper paychecks. What’s more, you don’t have to wait for your employees to get their salaries or cash their checks. 


Direct deposits come with risks, as well. There are several cons of using direct deposit that you might need to consider. Here are some of them:

Overdraft Fees and No Stop Payment Option

If, for instance, you do not have sufficient money in your bank account when payrolls are withdrawn, it places you on the bad side. By that, we mean, you could incur or receive overdraft fees, which can be both expensive and inconvenient.

Moreover, there is no stop payment option like you can with paper paychecks. It could be a problem if you make an error when computing employee hours.


Direct deposits are extremely time-sensitive processes, and relying upon the workload of an employer, deadlines can be neglected. So, if you can’t collect all the attendance sheets and time of your employees and process salaries by a particular time of the day, the payrolls of your employees will not be transferred in their accounts on time.


It is wise to contact your payroll provider or financial institution to know how much it costs to put up and maintain a direct deposit. Although direct deposit might appear to be all about saving money and time, you can be hit with costs or fees that range from 50 to 149 dollars. 

Also, banks can charge employers whenever money is transferred or sent from their account to the bank account of their employees. And it costs around 1.50 to 1.90 dollars per individual transfer. 

bank deposit – DepositPhotos

Tiffany Wagner

Tiffany Wagner

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