How to Set up Direct Deposit for Employees in QuickBooks?

How to Set Up Direct Deposit for Employees in Quickbooks Desktop

Setting up direct deposit for employees does not have to be a challenging task. Utilizing direct deposit not only saves you time and money but also enhances employee satisfaction. If you wish to join the 93% of Americans who receive their pay via direct deposit, as reported by Payroll.org, this guide will assist you in set up direct deposit for employees in QuickBooks.

We will guide you through everything you need to know about direct deposit, including its advantages and possible disadvantages, and provide a step-by-step plan to set up payroll for direct deposit in six simple steps:

Step-By-Step Set Up Direct Deposit for Employees in QuickBooks

Pick a Direct Deposit Provider:

To set up direct deposit, you must first select a provider. A direct deposit provider facilitates the transfer of funds from your company account to your employees’ accounts through the ACH system.

Your bank or a payroll services company can assist you in setting up a system, or you can use payroll software to transfer money. Outsourcing payroll can save time, particularly if you lack a dedicated payroll specialist.

Sending direct deposits incurs costs. Depending on the payroll provider you choose and their system, you may incur a lump sum charge or a per-employee and per-transfer fee. Some providers may conduct a credit check on your company to evaluate its financial standing and ability to pay employees and the provider.

In case you’re deciding to choose which payroll provider to use, make sure to look for: 

  1. Size of companies they work with and their capacity to handle them.
  2. Cost structure, including service fees, transfer charges, and direct deposit setup fees for each employee.
  3. Time required to set up direct deposit for your company.
  4. Time required to add new employees after the initial setup.
  5. After selecting a provider, ensure you have an account suitable for sending direct deposits.

Set up Proper Bank Accounts: 

Not every business account is the same. Even though it would be great if you could send direct deposits from your normal business bank accounts, you will definitely need a special type of account. All these payroll accounts are designed to handle regular ACH transfers. 

Considerations for Setting up Direct Deposit Accounts:

  • Be aware that the verification process might take several weeks.
  • Be prepared to sign forms acknowledging your agreement with the bank’s ACH payment policies.
  • The bank may request financial statements demonstrating your company’s ability to meet the financial requirements of the direct deposit program.

If you use payroll software, many of these steps will be simplified, as pertinent information is often already stored within the system. QuickBooks, for instance, provides instant bank account connectivity, allowing for the seamless setup of payroll and direct deposits.

Collect Employee Information:

Now that you’ve set up everything, you’ll need to collect deposit information from your employees. To initiate this, you can have them fill up the forms, or if you have an employee HR portal, they can input their information themselves.

Also Read: QuickBooks ACH (NACHA) File Creator

To set up direct deposit for employees in QuickBooks, you will need the following information:

  • The employee’s bank name
  • The employee’s routing number
  • The employee’s account type
  • The employee’s account number

The requirements for setting up payroll direct deposit can vary based on the bank and location. In some cases, you may need to provide the employee’s Social Security number and have them sign a consent form allowing you to make deposits into their account. 

Additionally, some providers might request a voided check along with the aforementioned information. It’s important to retain certain information as part of your payroll records, to ensure the security of this data.

Upload Employee Information into the Payroll System:

Now once that you’ve collected the necessary employee information, it’s finally time to upload it into your payroll system, and there are only two ways to do this: 

Manual Entry: The direct deposit/bank system allows you or a member of the HR or payroll team to enter employee information individually.

NACHA forms: To facilitate ACH payments, the NACHA form is a crucial document. Utilizing your payroll software, you can generate this form and upload it to your bank’s direct deposit services system, thereby streamlining the upload process and ensuring efficient and timely delivery of payments.

What Information Does a NACHA Form Need to Have?

A NACHA form needs to have all this information within the form: 

  • The name of the business or customer
  • An email address for online payments
  • The bank’s name
  • The amount
  • The kind of bank account
  • An account number
  • The transaction type
  • Debit statement: this should explain that a transaction can be revoked.
  • A signature field

Set up a payroll and direct deposit schedule once the information has been uploaded.

Schedule Payroll & Direct Deposits: 

Implementing direct deposit instead of paper checks can reduce the time spent on payroll management after the initial setup.

Regardless of your current payment method, you likely have an existing payroll schedule. Before transitioning, decide whether to maintain or modify it. It’s crucial to communicate any changes to your company, especially those affected by the transition, beginning with your payroll team. Collaborate to determine the timeline and inform the rest of the team about the upcoming changes.

In the payroll system, align the dates with the appropriate schedules to run payroll efficiently.

Run Payroll: 

To initiate payment to your employees via direct deposit, the final step is to run payroll. If completing the process manually, collect timecards, pay rates, and tax schedules. By utilizing payroll software, you can automate functions for increased efficiency and accuracy.

Once payroll calculations are complete, enter the data into the direct deposit system. Ensure that the appropriate account contains sufficient funds to cover employee salaries. Following this, prepare for the next pay period.

What are the Advantages of Direct Deposit?

Due to its remarkable advantages, direct deposit has become a widely used modern payment method. Let’s explore some of the benefits of direct deposit for employers:

Budget Friendly: Employers can significantly reduce costs by embracing direct deposit instead of writing, printing, and mailing paychecks. This eliminates the costs associated with lost or stolen checks and the need to stop payments.

Time-Saving:  Automating payroll through direct deposit offers significant time-saving benefits. It eliminates the time-intensive tasks of writing, signing, and distributing physical paychecks. Direct deposit streamlines the process by automatically transferring funds to employees’ accounts before payday, saving time and simplifying payroll management.

Strong Security: Stolen or lost paper checks constitute one of the most prevalent sources of fraud and identity theft. Utilizing direct deposit can serve as a protective measure for you and your employees against the risks associated with forged signatures and stolen checks.

Automated Pay Scheduling: With modern technologies like same-day ACH payments, you can automate transfer schedules and eliminate the stress of missing payroll and leaving employees unpaid. These technologies ensure that paychecks are cleared on time, every time.

Additionally, some payroll providers may offer other valuable features beyond the ones listed above, further enhancing the cost-effectiveness of their services.

Also Read: Change Payroll Tax Deposit Schedule In QuickBooks Desktop

What are the Disadvantages of Direct Deposit? 

While direct deposit of employee pay offers many advantages, it may not always be simple or cost-effective. Consider these potential disadvantages of direct deposits:

Expensive overdraft fees: Maintaining a low account balance can result in overdraft fees for every deposit that exceeds the available funds, leading to significant financial strains, especially for businesses with a large number of employees.

Limited stop-payment options available: It’s important to note that most ACH (Automated Clearing House) transfers are not easily reversible. If you need to stop a direct deposit, it’s crucial to inform your bank or payroll provider at least three days in advance. This is because many banks require a three-day notice period before they can process a stop request. 

Additional fees and cost: Typically, Automated Clearing House (ACH) transfers lack the flexibility for easy cancellation or reversal. For instance, stopping a direct deposit transfer often requires three days advance notice with most banks. Therefore, it’s essential to verify with your payroll provider regarding available options in case of any errors or changes.

New paperwork when you switch banks: If you switch banks, some providers may charge an additional setup fee. It’s important to obtain the employee’s new banking information before the cutoff date for the next pay period to avoid any disruptions. If the information is not provided on time, alternative payment methods such as physical checks or one-time wire transfers may need to be considered.

Problems because of wrong account numbers: Incorrectly setting up an account number can significantly hinder your business. Failing to pay employees on time may result in penalties from the government and dissatisfaction among your staff.

When choosing a direct deposit provider, consider inquiring about their methods to safeguard your company from unnecessary fees or complications. They may offer specific features tailored to mitigate such issues.

Conclusion!!

Streamlining your payroll process may require some initial effort, but the time and cost savings can be substantial. Regular payroll reconciliation is a crucial first step, ensuring accurate payments to employees and avoiding overpayments.

Payroll software can significantly expedite and enhance the reconciliation process, allowing efficient updates to employee information for direct deposit and tax purposes. QuickBooks offers a user-friendly interface that guides you through setting up direct deposit for employees in QuickBooks, making it a straightforward task.

Frequently Asked Questions (FAQs):

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