Page 128 - Essentials of Payroll: Management and Accounting

Payr oll Best Practices
Use Direct Deposit
A major task for the payroll staff is to issue paychecks to employees.
This task breaks down as follows: First, the checks must be printed
(though this seems easy, it is all too common for the check run to fail,

resulting in the manual cancellation of the first batch of checks, fol-
lowed by a new print run). Next, the checks must be signed by an
authorized check signer, who may have questions about payment
amounts, which may require additional investigation. Third, the checks
must be stuffed into envelopes and then sorted by supervisors (since
they generally hand out paychecks to their employees). Fourth, the
checks are distributed,usually with the exception of a few checks being
held for later pick-up for those employees who are not currently on-
site. If checks are stolen or lost, the payroll staff must cancel them and

manually issue replacements. Finally, the person in charge of the bank
reconciliation must track those checks that have not been cashed and
follow up with employees to remind them to cash their checks (there
are usually a few employees who prefer to cash checks only when they
need the money, surprising though this may seem). In short, there are a
number of steps involved in issuing payroll checks to employees. How
can we eliminate some of them?

We can eliminate the printing and distribution of paychecks by using
direct deposit. This best practice involves issuing payments directly to
employee bank accounts. In addition to eliminating the steps involved
with issuing paychecks, it carries the additional advantage of putting
money in employee bank accounts immediately, so that those employees
who are off-site on payday do not have to worry about how they will
receive their money—it will appear in their checking accounts auto-
matically, with no effort on their part. Also, this practice eliminates the
effort of asking employees to cash their checks, since it is done auto-

matically.

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