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What is Payroll Direct Deposit?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 September 2016
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A payroll direct deposit is a procedure that allows an employer to electronically forward an employee’s net pay to one or more bank accounts. Utilizing this process to compensate employees for their work helps to simplify paperwork and eliminates the necessity for the employee to find an opportunity to manually deposit the paycheck. The use of payroll direct deposit has become more common in recent years and is especially popular with companies that choose to outsource payroll tasks to a vendor.

Making use of the direct deposit strategy to provide salary and wages to employees is made simpler by the use of Internet technology. Small businesses that contract with a payroll service provider are normally able to upload information about the upcoming payroll by a given day of the week. The payroll service handles the calculation of withholding taxes, insurance premiums, or other deductions and posts an online report of the final structure of the payroll activity for that pay period.

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By associating banking information with each employee account in the payroll program, it is possible for the payroll direct deposit service to distribute the net pay among more than one account. It is not unusual for employees to provide account numbers for savings as well as checking accounts. Assuming that the payroll service is provided with the payroll data in a timely manner, the service executes electronic deposits for each employee on the afternoon before the official payday. This makes it possible for banks to post the deposits to the accounts on the actual payday. In turn, employees are able to make use of those funds by the close of business on the posting date.

Many services that oversee payroll functions supply each employee with online access to their pay history for the current year. The detail includes the gross pay earned in each period, along with a breakdown of all withholding activity and the amount of net pay posted in each bank account listed in the database for that employee. It is not unusual for a payroll direct deposit service to supply the employee with a hard copy receipt for each pay period that reflects any type of earning activity.

A number of payroll software programs also allow employers who manage payroll functions in-house to set up electronic transfers of net pay into the bank accounts associated with each employee file. Like the payroll services, these software programs usually initiate the payroll direct deposit on the afternoon before the pay date, making it possible for the funds to be posted on the actual payday. The software also handles the process of generating hard copy receipts for each employee, as well as creating payroll reports that can printed when and as needed.

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