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E-pay & direct deposit: Know your new options

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in Centerpiece,Office Management,Payroll Management

direct deposit summaryThese days, most employees have their pay deposited directly into their bank accounts. Most isn’t all, however.

Millennials and Gen Xers do everything on their smartphones and banks are happy to play along, promoting apps that allow people to deposit paper paychecks by snapping photos with the cameras on their phones. This trend—along with the rise of pay delivered on stored-value debit cards—has become a real threat to employers’ efforts to get all their employees into direct deposit.

How to encourage direct deposit. For new hires, one tried-and-true tactic is to include direct deposit enrollment forms as part of the routine paperwork—W-4s, I-9s, etc.—they must complete on day one.

For everyone else, you can point out that there are many more ways that employees’ identities can be compromised with smartphone apps than there are with direct deposit. Plus, direct deposit is automatic and instant. Paper checks deposited via smartphone often have a one- or two-day delay.

Check, please. Regardless of your best efforts, some employees may never buy into direct deposit. Remember, as a rule, you can’t force employees to take their pay via direct deposit. Several states have laws about when you can make e-payment a condition of employment (see box, page 1).  

Plus, NACHA, the electronic payments organization that represents banks, has a website full of ideas you can use to coax resistant employees. (Go to www.electronicpayments.org/business).

Find and fix direct deposit errors. Employees will run right back to their smartphones if repeated mistakes hinder their ability to access their pay. You can avoid the most common problem—employees’ pay wasn’t deposited—by having them provide you with voided checks when they enroll (deposit slips won’t do). Also, double check that the surnames on their bank accounts match the names in your payroll. Remind employees to notify you immediately if they change direct-deposit-linked banks or accounts.

Fixing other errors is more complicated, however, because you’ll have to work with your bank to reverse the electronic transaction. Reversals may be necessary if an incorrect amount or duplicate amount was deposited. Reversals should be initiated immediately.

Keep paycard program on track

Under federal Regulation E, you can’t force employees to receive pay via paycards unless you first give them the choice of paycards or direct deposit. But state laws generally require voluntary participation in paycard programs. All states require that employees paid by paycard be able to cash out their entire pay free of fees.

Landmine: Since employees must have access to their entire net pay fee-free, don’t load pay onto employees’ personal general purpose debit cards that they present to you. Reason: General purpose cards are subject to the full array of fees.

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