Direct deposit has grown in popularity since it was introduced in the 1970s as employers and employees alike have realized the many advantages to using this method of payment.
Just like smart phones have replaced payphones and scan-to-email has replaced fax machines, direct deposit has replaced the need for traditional paper paychecks.
According to a 2020 American Payroll Association survey, 94% of U.S. workers now receive their pay by direct deposit.
Direct Deposit Benefits for Employers
Direct deposit is appealing to the employer for a number of reasons:
- It reduces the risk of check fraud and lost or stolen checks
- A paperless environment means cost savings and environmental benefits
- Employees can get paid no matter where you or your employees are located
- It reduces bookkeeping since no delays of cash movement occur and funds are paid directly into your employees’ bank accounts
Beyond being a convenience, the direct deposit pay method became a necessity for some employers during the current health crisis. With financial uncertainty, postal disruptions, and logistical challenges, direct deposit provided a safe and secure method for getting employees their earned wages on time.
Direct Deposit Benefits for Employees
Despite the benefits, employers in most states—including New Jersey, New York, and Connecticut—cannot require an employee to use direct deposit. Nor can you charge hold outs a fee for providing a physical check.
However, you can share the benefits with your employees, to persuade them to make the transition. These include:
- No wait time for checks to clear; funds can be accessed on the check date
- It’s more secure since there’s no chance of losing a paper check or having it stolen
- More freedom with their money; compensation can be divided automatically among bank accounts
And two that have become more relevant since the pandemic:
- No trip to the bank means not having to worry about banks unexpectedly closing or having to wait in crowds to cash a check
- Instant access to their pay means remote employees can access their money without a trip to the office or relying on the postal service
Embracing Direct Deposit
During this uncertain time, you likely have many concerns. Making sure that your employees are paid shouldn’t be one of them. If there was ever a time to embrace direct deposit, and communicate the benefits to your employees, this is the time.