Setting up direct deposit for employees can be a great move for any business, as it’s one of the most efficient and widely-used methods of delivering employee wages. It’s also a method that can streamline your internal operations and reduce potential payroll headaches.
Quick insights into setting up direct deposit
- Direct deposit is an electronic method of transferring wages directly into employees’ bank accounts.
- Setting it up requires a business bank account, payroll service provider, employee consent, and banking details.
- Over 90% of employees in the U.S. get paid this way.
- This method is generally more secure and less error-prone than issuing physical checks.
Although it’s a commonly used payment option, businesses setting up direct deposit for the first time may feel overwhelmed by the process. But once the foundational steps are in place, maintaining it becomes simple.
Understanding direct deposit Direct deposit allows an employer to send employee wages directly to their bank accounts without the need for paper checks. While still part of the broader category of electronic funds transfers (EFTs), direct deposit is the most widely recognized term by employees.
ACH explained Automated Clearing House (ACH) is the network that facilitates these transfers. This network, made up of thousands of banks and credit unions, enables electronic batch processing of payments. It’s what makes direct deposit fast and reliable.
How direct deposit works
- The employer initiates the payroll transaction.
- The employer’s bank processes the payment and submits batches to the ACH.
- The ACH distributes payments to the correct financial institutions.
- Employee banks receive the transfer data.
- Wages are credited to employee accounts, and the total is debited from the employer’s account.
Steps to set up direct deposit
1. Choose a payroll solution You’ll need a system in place to process direct deposits. Providers like Beyond offer integrated payroll services that handle direct deposit and ACH submissions. Some business banks can also help facilitate setup.
2. Authenticate your business bank account To move funds electronically, your business account must be verified. This often includes a risk assessment handled by the payroll provider in collaboration with their ACH partner.
3. Gather employee information Here’s what you’ll need:
- Bank account number
- Bank routing number
- Account type (checking/savings)
- Signed employee authorization
Payroll platforms like Beyond often include employee self-service portals where staff can securely upload this information.
4. Confirm your pay schedule Work with your bank or payroll provider to align your payroll cycle with ACH processing timelines, weekends, and holidays. Typically, you’ll need to account for 2–3 business days of processing.
5. Test before launching Run a test payroll or verify timing with your provider. Clearly communicate to employees when they can expect their first direct deposit.
What it might cost Some payroll platforms charge:
- Setup fees: $0–$75
- Monthly service fees: $40–$60+
- Per-employee processing: ~$6 per payroll run
- Direct deposit fees: ~$0.70–$1.30 per deposit
Banks may also charge for setup ($50–$149) or per-transaction fees depending on account terms and business size.
Benefits of direct deposit
For employers:
- Eliminates manual check handling
- Reduces chances of lost or stolen checks
- Creates a digital record of transactions, useful for audits
- Enhances security with encrypted data and secure servers
- Saves money on paper and postage
For employees:
- Secure, fast access to wages
- Less risk of lost or stolen checks
- Convenient, no bank visits required
- FDIC-insured once deposited in the bank
Potential drawbacks
- Employees must have a bank account
- Payroll scams (e.g., diversion fraud) are a concern, train staff to spot phishing
- Setup and transaction fees may apply, but long-term savings often outweigh costs
Employee costs? Employees typically pay nothing for receiving their pay via direct deposit.
Conclusion Direct deposit is a reliable, secure, and convenient way to pay your team. Employers benefit from streamlined operations and reduced errors, while employees gain fast, predictable access to their pay. Whether you choose a provider like Beyond or use your bank’s services, direct deposit is a smart investment in modern payroll practices.
