What is a direct deposit form?

A direct deposit slip is a form that employees fill out that gives permission for an employer to send money to their bank accounts electronically. This form not only provides consent but also records the information you need to set up each employee’s direct deposit. If you offer direct deposit, give employees an opportunity to fill this form out during their onboarding process and remind them that they can always request the form later if they decide to set up direct deposit or change their banking information.

Why is direct deposit popular?

Direct deposit can be used to attract talent to your business because it’s one of the most popular payment methods. Some people might base their decision to work for you in part on whether you offer direct deposit. The reasons people enjoy it can include:

• A direct deposit saves them time. Some banks send their paychecks a day or two early, and the money is available right away, while depositing a check may require the funds to stay on hold for several days.

• Employees won’t lose their checks accidentally.

• Direct deposit resolves concerns over delayed mail because employees don’t need to wait until the mail arrives to access their money.

• Some banks offer special benefits if customers use direct deposit. Advantages can include better interest rates, early access to their money or free accounts.

• Employees may choose to include more than one bank account on their direct deposit slip so that a portion of their money automatically goes to savings.

Benefits of direct deposit for employers

Your employees will enjoy the convenience of being paid automatically, but direct deposit helps your business too. Printing and mailing checks costs money, and you save money and time when you can forgo writing a check. Other benefits for your business include:

• You don’t need to wait for employees to cash their checks to reconcile your bank account balance.

• You can deliver payments to employees who are sick, on vacation or taking leave with the same amount of convenience.

• Direct deposit gives you more autonomy over payroll expenses and allows you to keep accurate records of payments.

• With direct deposit, thieves can’t intercept your employees’ checks through the mail, and it’s more difficult to commit fraud.

These are just a few reasons why direct deposit is just as popular for employers as employees. Companies that implement it may also notice that their human resources and payroll departments aren’t as burdened by keeping up with the workforce’s pay.

How to create an authorization form for direct deposit

If you haven’t set up direct deposit for your business yet, notify your entire team once it’s available. The best way to create a direct deposit form is to use a template. Information that’s essential to setting up each person’s direct deposit includes the following:

Contact details

The form should include your business name, address and phone number and require employees to provide the same. This information is used to verify your employees’ identities and make sure they’re giving you permission to send money to their bank accounts.

Bank information

While you don’t need to allow your employees to enter more than one bank account, it may be a good idea to give them the option. If you provide multiple lines for bank accounts, include a line for your employees to indicate what percentage of their paycheck should go into each account.

For each account, you’ll typically need the name of the bank, routing number, account number and type of account. Make sure to show employees how to locate this information using one of their checks so their forms are accurate and easy to process.

Consent statement

You may need to include a statement that says your employee authorizes you to deposit money into their bank account. Consult with an attorney or your legal team for advice on this.

How to set up direct deposits

You can use many apps and computer programs to organize and send your direct deposits. The first step is to see if your bank has its own direct deposit software. Using your bank’s technology is much simpler and can save time compared with using multiple systems. Your bank may even save you some time by providing a template for your employees so you don’t need to create it yourself.

If your payroll is outsourced, check with the company that runs it for you. Most payroll companies have relationships with banks or payroll software that supports direct deposit. Some additional tips include:

• Communicate the frequency of payments (weekly, biweekly or monthly) with your bank or payroll company.

• Let employees know how pay periods work so hourly workers know how much money to expect on their upcoming checks.

• Be prepared to provide paper checks to employees until their direct deposit setup is complete.

Alternative payment methods

While it might be possible to require all your employees to sign up for direct deposit, doing so could alienate employees that don’t have or want bank accounts. When recruiting talent, show candidates that you offer flexible payment options to meet their needs. Some alternatives you can offer for people who don’t want to sign up for direct deposit include the following:

Traditional paychecks

You can print checks for employees that don’t sign up for direct deposit. Regardless of whether they have a bank account, they can still cash checks at a currency exchange or local bank. The downside to this method is that your employees need to pay check-cashing fees if they don’t have a checking account.

Prepaid cards

Some employers are resolving the issue of paying workers without checking accounts with prepaid debit cards. You can set up cards for employees they can use immediately after receiving their paychecks. It’s like direct deposit without a bank account. One potential issue with this method is that the companies providing these cards often charge fees when you load the cards, and employees can incur transaction fees with each use.

The bottom line

With the right software or payroll service, creating an authorization form for direct deposit is easy. Offering direct deposit to your employees can save you time and money while offering your team added convenience and security. If you do set up direct deposit, be prepared for some employees to turn it down and offer one or more alternative payment methods.