Setting Up Direct Deposit for Your Employee

How to use the Elec Pay option – a walkthrough guide for payroll teams on how to enrol their employees into ePay

Converting your employees from paper checks to dir ect deposit has never been easier or more affordable. Direct deposit for employees can be established with preparation, communication and precision of bank details. This guide shows payroll professionals how to put a program in place by touching on practical details, compliance issues and testing of employee direct deposit.

Plan and setup your payroll process

Start by analyzing your current payroll cycles and processes. Determine whether you will require or allow direct deposit, which pay schedules are eligible and whether you will permit partial deposits (splitting pay between accounts). Consider how you will gather the banking info of employees, where in your store this detail should be stored safely and who gets access to this info?

Create clear enrollment materials

Design a basic “authorization to deposit” that your direct deposit participants must sign. The form only needs to ask for what's necessary: employee name, bank name, bank routing number, account number, type of account (checking or savings), and how much/percentage if you're spearing it from your wages. Add a line for the employer to submit payroll transfers and one to mark if the employees are accurate. Offer step-by-step guidance and examples so employees know how to find their routing and account numbers on a check or from their bank.

Collect employee banking information securely

Collect secured banking data in a privacy-safe way. Provide a few different options — secure web form, encrypted email portal or drop off of paper forms — depending on the security stance of your organization. Restrict access to collected information to authorized payroll staff only. It helps ensure that people are who they claim to be and minimizes the potential for fraud and unauthorized changes.

Verify legal and compliance requirements

Look into local, national labor regulations and tax laws that govern the direct deposit process. Some mandates also provide exceptions allowing an employer to pay staff by means other than direct deposit. Keep employee authorizations and issue receipts or written confirmation of enrollment. Make sure your process is flexible enough to deal with employees who don’t have bank accounts or are paid in some other arrangement.

Create a payroll system for direct deposit payroll

Whether you process payroll in-house or use a third-party provider, set up payroll for EFT. Provide fields for routing and account numbers as well as account type. Determine how to name multiple accounts per employee, and what to do about partial deposits or deductions for retirement or garnishments. If your payroll system allows, consider turning on automatic validation checks for routing and account numbers formatting to catch blatant errors before any transactions are initiated.

Perform account validation and testing

Take steps to validate and confirm before exporting live payroll files. Some companies do this using a micro-deposit verification: deposit some small amount (even just $0.01–$0.10) into the employee’s account and then ask that employee to confirm exactly how much was deposited. Instead, process a small-sample payroll batch to employee accounts or a single check to confirm that transfers complete and post timely. Resolve any returned transactions or rejected transactions quickly, knowing the usual suspects like routing numbers that are outdated; closed accounts, and name mismatches.

Schedule a time frame for transmitting payroll transfer files to your bank or payments processor. Just watch the cut-off times and processing windows to make sure those funds are available when payday comes. Have “bank holiday” or processing delay procedures in place. Maintain exhaustive logs of file submissions, confirmations and error reporting so you can easily track down problems.

Communicate with employees

Let employees know when they need to sign up, when their direct deposit will take effect, and how they’ll be notified. Offer instructions for updating banking information, whom to contact with questions and what to do if a payment fails or is delayed. Clear communication limits the number of queries and improve trust among employees in payroll.

Manage exceptions and returned payments

Returned deposits will occur occasionally. Institute a policy for dealing with returns: inform the employee who would otherwise be paid, try to sort it out with the bank and, if necessary (by no fault of their own, like death or divorce) use another form of payment, like a check. Monitor returned transactions, to pick up on any trends – for example high rates of return may be evidence of a data entry error or fraudulent activity.

Maintain records and update authorizations

You will want to keep secure records of authorization forms, and evidence of revisions. For employees changing accounts, demand a new signed authorization or secure online update accompanied by verification of identity. PPRESERVE: Keep records as long as legally required and in accordance with your organization’s document retention policies. Conduct periodic review of payroll data to verify routing and account numbers remain valid and access controls are being adhered to.

Protect sensitive data

Consider bank data to be of critical sensitivity. Encrypt data at rest and in transit. Limit access to payroll systems and services on a need-to-know-basis, requiring multi-factor authentication for access to databases containing sensitive information. Train payroll personnel on best practices for privacy, and monitor for any uncharacteristic access or modifications to employees’ bank account info.

Troubleshoot common issues

Typical issues are incorrect routing numbers, closed or dormant accounts and slightly mismatched names. If a deposit drops, check the account information and bank for return codes--then sit down with the employee to have him review the data. Validation rules and double entry checks should be enforced during data collection to avoid human errors.

Scale and refine your process

Review your policies as you grow and automate if applicable. Standardize forms, automate validations and include employee self-service features that allow workers to securely make changes to their bank information. You should periodically review your direct deposit processes to identify areas for streamlining and that you are in compliance with new regulations.

Conclusion

When it comes to putting direct deposit in place for employees, the devil is truly in the details: safe handling of sensitive personal information and effective communication about this hyper-critical part of your compensation plan are a must. With careful rollout design, accurate bank account information collection and validation, payment testing and secure recordkeeping, payroll administrators can establish a reliable direct deposit process that leads to improved punctuality while reducing costs and making employees happier.