Page 261 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
to the personal savings or checking accounts of its employees. By doing
so, employees avoid taking paychecks anywhere for cashing, which saves
time and possibly a check-cashing fee. This method also lowers the risk
of employees losing a paycheck. It is particularly useful for people who
are either on the road or on vacation on payday, since the deposit will

be made in their absence.
Direct deposit works most simply if a company uses a payroll sup-
plier, since this third party will have an automated direct deposit linkage.
If payroll is processed in-house, then a company must send an electronic
file containing information about where money is to be transferred, as
well as the accounts into which they will be deposited, to a financial
institution that is equipped to process direct deposit transactions.This file

is processed through the Automated Clearing House (ACH) network,
which transfers the funds.The employer then issues a payment advice to
employees, either on paper or electronically, that details their gross pay,
taxes and other deductions, and net pay.
Employers can require employees to accept direct deposit,though this
requirement is frequently overridden by state laws that require employee
concurrence. Consequently, it is best to obtain written permission from
employees prior to setting them up for direct deposit payments. This
permission should include the routing number of the bank to which

payments are to be sent, the account number within that bank, and the
amount of funds to be deposited in each account. Typically, funds may
be deposited in multiple accounts, such as $100 in a savings account and
the remainder in a checking account.When asking for written permis-
sion from employees, it is best to also obtain a voided check for the
account to which the funds are to be sent, in order to verify the routing
and account numbers. Using a deposit slip to verify this information is

not recommended, since the identification numbers on the slip may not
match those of the bank.

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