Page 262 - Essentials of Payroll: Management and Accounting

Payments to Employees
When an employee signs up for direct deposit, he or she should be
informed that the next paycheck will still be issued as a check, since the
direct deposit transaction must first be verified with a prenotification
transaction to verify that a regular paycheck will arrive properly in the

employee’s account. A prenotification transaction, in which a zero-dollar
payment is sent to the employee, is quite useful for verifying that a stan-
dard direct deposit transaction will process properly.Consequently,though
it is not required, a company should always insist on a prenotification
transaction when first setting up an employee on direct deposit.
If a company has locations in multiple states and processes its payroll
from a single central location, then the checks sent to outlying locations

will take longer to clear (since they are drawn on an out-of-state bank).
This issue should be brought to the attention of employees in the outlying
locations,which may convince them to switch over to direct deposit pay-
ments, which require no timing delay in making payments.

Payments to Employee Credit Cards
Some companies employ people who, for whatever reason, either are
unable to set up personal bank accounts or choose not to do so.In these

cases, they must take their paychecks to a check-cashing service, which
will charge them a high fee to convert the check into cash. Not only is
it expensive, but the check-cashing service can have a long approval
process.Also,employees will be carrying large amounts of cash just after
cashing their checks, which increases their risk of theft. They also run
the risk of losing their paychecks prior to cashing them. Thus, the lack
of a bank account poses serious problems for a company’s employees.

A good solution to this problem is to set up a Visa debit card, called
the Visa Paycard, for any employees requesting one, and then shift payroll
funds directly into the card. This allows employees to take any amount
of cash they need from an ATM, rather than the entire amount at one

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