How to Set Up Direct Deposit in 2024 with Ease

Did you know that it is important to know how to set up a direct deposit account? Moreover, it’s much faster than paper deposits, letting you access your money on the day of the deposit. Let’s see how this works.

How to Set Up Direct Deposit

Direct deposit is a fully automated way of handling transactions. When receiving a direct deposit, the payer makes an electronic payment that is automatically transferred into the payee’s checking account.

There is no need for a physical check or for either party to go to the bank for the money to transfer.

This payment method has become very common in recent years, with nearly 94% of U.S. workers obtaining their paychecks via direct deposit, according to the American Payroll Association’s 2020 Survey.

How to Set Up Direct Deposit to Your Bank

Since direct deposit occurs automatically, it is more convenient for the employee, and more economical for the employer, who does not have to spend money to print and distribute paper checks.

Now that we’ve gone through what direct deposit is and exactly how it works, let’s go through, step by step, how you can set it up for your employees.

1. Choose a Direct Deposit Provider

The first thing you need to do when setting up a direct deposit for employees is to decide who is going to provide the services.

Essentially, this is the entity that will handle and house all of the information for both your business and your employees and will ultimately be the one taking the funds through the direct deposit process that we outlined above.

Generally, you have two options for direct deposit providers. You can work with the bank that houses your business bank account as well as any other business, accounting.

Either of these options will give you the ability to send payments electronically through it.

2. Initiate the Setup Process

If you decide to set up a direct deposit through your bank, you can talk to them directly for options, pricing information, and specifics for getting started.

Your bank may ask for recent financial statements, just to verify that you have the necessary finances in place to be setting up this process.

If you’re using payroll software, on the other hand, much of what you need to get started will be integrated into the platform, and the information you provided when you started your account with that software will help.

If you’re setting up your payroll software for the first time and initiating a direct deposit, then you’ll need to put in your business bank account information. This will be the account that your direct deposits will pull from.

Finally, your provider will do a test and withdraw a small amount of money from your account. You will then verify this transaction with them to confirm the process is working.

3. Collect Information from Your Employees

After initializing the direct deposit process with your chosen provider, your next course of action is to collect information from your employees.

From your employees you will need their bank account number, the bank account type (checking, savings), the bank’s routing number, and the bank’s name.

In addition to these pieces of information, you’ll need your employees to sign an authorization form that says they give you access to transfer the funds (their paycheck) electronically.

There are forms available that you can customize to your business and that allow your employees to provide all of these necessary pieces of information in one form. You can find an example here.

If you use HR software that has employee logins, your employees can log in themselves fill in the relevant information, and give the direct deposit authorization directly in the software.

In this case, the information will automatically connect to your payroll.

4. Enter the Employee Information into Your System

Now that you’ve collected all the necessary information from your employees, you need to add it to your payroll.

You’ll input the information provided by your employees into your business accounting or other payroll software.

The individual software you use should have documentation specific to this process, but essentially, you’ll be adding everything from the direct deposit authorization form into the system.

You’ll input all of the information for your employees given on their direct deposit authorization form and save it in the system. With this batch created, you’ll be able to send your payroll to them.

5. Create a Direct Deposit and Payroll Schedule

Once all the relevant information is in the system with your direct deposit provider and you’ve been through the authorization process, you should be ready to get started.

You should know that a direct deposit can take 7-10 days to get set up officially with your provider.

Moreover, you wouldn’t want to start setting up a direct deposit a few days before you intend to pay your employees.

You may already have had a payment schedule set up, but you’ll want to double-check with your bank or payroll services to make sure that your current schedule will be on track once you’ve set it up.

Don’t forget to communicate the schedule with your employees and payroll administrators.

You’ll want to set a cut-off date for your employees to submit hours or time cards so that you have enough time to review and then process payroll to go through direct deposit.

6. Run Payroll

Once you’ve got everything set up, and you’ve verified the direct deposit activation with your bank or payroll software, you’re ready to go.

You can run the payroll on the schedule you’ve determined, and your employees will receive their paychecks via direct deposit.

How Does Direct Deposit Work?

How to Set Up Direct Deposit

If we look into the specifics of the direct deposit process even further, you, as the employer, initiate the direct deposit with your bank.

Afterward, your bank will take any and all direct deposits, package them together, and send them in batches to the ACH, at regular, predetermined intervals.

Then, the ACH will receive the direct deposit orders, and send them along to the banks of all of your employees before those banks receive the orders and credit the accounts of your employees accordingly.

When your employee’s account is credited, yours is then debited the corresponding amount.

This process generally takes one to two business days, according to the National Automated Clearing House Association (NACHA).

An important thing to note about this process is the exact timing can also depend on your bank, your employee’s bank, which payroll software you use, and any national holidays that affect bank operations.

Don’t worry though, your payroll software or bank will be able to help you plan out the payroll schedule and corresponding direct deposit schedule that works best for you.

What Time Does Direct Deposit Hit?

It differs based on your banking institution. Many banks deposit funds at midnight but check with your bank to verify their policy.

ACH deposits generally take a few days to transfer from your employer’s account to yours, which is the reason most employers initiate direct deposit a few days prior to payday.

If your payday falls on a Saturday or Sunday, direct deposit will naturally hit your account on the Friday before the weekend.

How to Check Direct Deposit Status?

Determining your direct deposit status is as easy as logging into your online bank account to see if your money’s arrived.

If there is any delay, you may have to check with your employer’s payroll department.

If your employer operates software like Wave or Chime, you can view the status of your deposit from the moment your employer processes the payment.


The Benefits of Direct Deposit

How to Set Up Direct Deposit

There are notable benefits and that implies that you will get your pay earlier. Moreover, the money should be available to you on the morning of your payday.

In some situations, you might be able to access your funds as early as two days before payday. You won’t have to take your check to a check casher.

Depending on how much you have been paying to cash your check, you may save as much as four percent of your paycheck.

You’ll save time. This means never having to go somewhere to cash your check. It means one less trip per pay period. You can go straight home after work on Friday.

Moreover, once your money has become digitized, you can save more time through online shopping. Likewise, you won’t have to drive to pay your utility bills with cash.

You can direct your employer to split your direct deposit into more than one destination. You will find that automation makes it more convenient to realize your financial goals.

In conclusion, with direct deposit, you will never have to spend your lunch hour waiting to deposit your check at the bank again.

Remember the time when you stood outside on a cold December morning, waiting for the branch manager to unlock the doors? Have you ever lost your check? Never again.

Have you ever been so busy that you couldn’t get to the bank until a few days after payday? If that did happen, did you have trouble when there wasn’t enough money in your account?

Say goodbye to check problems and say hello to the convenience of digital banking.

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