Excerpt From Our Online Payroll Compliance Course
Step By Step Strategies On How To Set Up a Direct Deposit Program
Step 1:
The first step in setting up a direct deposit program is to do a "needs assessment".
In other words, will any of the employees sign up for the program? If the employer finds willingness of enough employees to use the program, then they should go on to step two.
Well-conceived employee communications are critical to the successful implementation of a direct deposit program. Although, most employees will immediately recognize the benefits of direct deposit, others may be unfamiliar with or untrusting of the concept of EFT and may resist giving up their paper paychecks.
Employers may be able to conceive some of these employees to use direct deposit through communications that "demystify" the direct deposit process and give testimony to its reliability.
Communications should emphasize:
- Direct deposit offers employees more security than receiving a paper check, since seldom, if ever, do direct deposit transactions go astray; lost, stolen, or destroyed checks are more common
- The direct deposit process uses a "prenotification" procedure to double-check account information before any of the employee's pay is actually transferred electronically
"Pay envelope stuffers" may be a great method for communicating information about direct deposit. For example, a paycheck stuffer emphasizing the convenience of direct deposit may hit home with some employees as they prepare to rush off to the bank to deposit their pay.
Other methods employers have used to communicate their programs include posters, video tapes, and special employee workshops. The employer's bank may be able to provide the employer with samples of questionnaires, marketing aids, and sign-up forms.
Step 2:
The employer must now set up the mechanics of the program with their in-house programming department or payroll service provider and their bank to set the electronic funds transfer in place.
After determining whether direct deposit is available through their current payroll system, employers should speak with several financial institutions and look for the direct deposit service that best fits the company's needs.
Here are six areas to evaluate the company's choice of banks:
- Experience
How long has the bank been involved in electronic direct deposit? Does it or the staff have the required expertise to assist in training the payroll staff and implementing a direct deposit program, as well as, processing the files through the ACH?
- Involvement
Does the bank offer to get involved with helping set up the new program? Will staff help market the new benefit to employees? Do they offer samples of forms and promotional literature for the company to use?
- Flexibility
Can the bank offer the employer choices in tape formats, delivery media, deadlines, reports, etc.?
- Service
Does the bank have a reputation for quality, attention to detail, and service?
- Sophistication
Is the bank keeping pace with industry developments in computerization and software enhancements?
- Price
Are the bank's charges for this service reasonable and competitive with other financial institutions?
There are other factors in choosing a bank, and a choice may not be available due to the employer's relationship with its financial institution. But these factors will help employers make a choice if the option of more than one bank is available.
Step 3:
With the hardware and software tested and in place, the employer must now get the employees to sign up for the program. This should be done through the employee authorization form, as discussed earlier.
Step 4:
After receiving the employee authorizations, the employer should go through the "pr-notation" or "prenote" process as discussed earlier. Processing prenotes are not mandatory but are strongly advised.
Step 5:
If all employees prenote with no problems, the employer can begin sending actual deposits through the system.
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