With direct deposit, an employee’s paycheck is sent electronically to one or more bank accounts.
A payroll direct deposit is a procedure that allows an employer to electronically send an employee’s net pay to one or more bank accounts. Using this process to compensate employees for their work helps streamline paperwork and eliminates the need for the employee to find an opportunity to manually deposit the paycheck. The use of payroll direct deposit has become more common in recent years and is especially popular with companies that choose to outsource payroll tasks to a provider.
The use of the direct deposit strategy to provide wages and salaries to employees is simplified through the use of Internet technology. Small businesses that have a contract with a payroll service provider can usually upload information about the next payroll on a particular day of the week. The payroll service handles the calculation of tax withholdings, insurance premiums or other deductions and publishes an online report of the final structure of payroll activity for that pay period.
By associating bank information with each employee account in the payroll program, it is possible for the payroll direct deposit service to distribute net pay among more than one account. It is not uncommon for employees to provide savings account numbers and checking account numbers. Assuming that the payroll service receives payroll data in a timely manner, the service makes electronic deposits for each employee on the evening before official payday. This makes it possible for banks to post deposits to accounts on the actual payday. In turn, employees can use these funds until the deal closes on the launch date.
Many services that monitor payroll functions provide each employee with online access to the current year’s pay history. The breakdown includes the gross pay earned in each period, along with a breakdown of all withholding activities and the net pay amount posted to each bank account listed in the database for that employee. It is not uncommon for a payroll direct deposit service to provide the employee with a hard copy of each pay period’s receipt reflecting any type of profitable activity.
Several payroll software programs also allow employers who manage payroll functions in-house to set up electronic net pay transfers to the bank accounts associated with each employee’s file. Like payroll services, these software programs typically initiate direct payroll deposits the evening before the pay date, allowing funds to post on actual pay day. The software also handles the process of generating paper receipts for each employee, as well as creating payroll reports that can be printed when needed.