Q: I work for a small company, and my employer recently started offering direct deposit of paychecks. This doesn’t sound secure to me, and anyway, I like getting and depositing my paycheck. Is there any reason to opt for direct deposit?
A: There’s a very short list of things that really haven’t changed in the past 50 years: apple pie, your fourth-grade teacher’s fashion sense and paper checks. Despite the advances that have been made in financial technology, paper checks are really about the same instruments they always have been. In a digital world, they’re increasingly expensive, cumbersome and insecure.
Many employers already have or are moving to an all-electronic system for paying their employees, and at the center of that system is direct deposit. Direct deposit transmits your paycheck from your employer’s business account directly into your checking, savings or prepaid account(s). You still get a pay stub or an electronic equivalent from your employer that lists the amount of the transfer along with any deductions, like taxes, health care or retirement.
What you won’t have to do is hold on to that check until you can find time to get to a branch. Payroll deposits clear instantaneously, which means the money is generally available in your account the same day.
Direct deposit really is the way of the future. Many large employers and some benefit providers require it, and it’s easy to see why. Let’s look at three reasons why direct deposit is right for you.
Think like a criminal for a second. A paycheck is the largest check most people see on a regular basis. This makes it a tempting target for theft. Think about how your employer would react to someone picking up your paycheck for you. Someone could pretend to be a spouse, babysitter or friend doing you a “favor.”
While the signature requirement is some protection, many check-cashing establishments don’t look closely for a match. It’s remarkably easy to cash a stolen check and the law provides little protection. Your employer might be sympathetic, but they’re probably not willing to issue you a second paycheck. The burden would be on you to prove the theft before you could get your salary.
With a direct deposit, those concerns are virtually nonexistent. There are no paper checks to keep safe. No one needs to pick up your paycheck for you. There’s no concern that someone else will accidentally be given your check. The whole transaction is handled seamlessly by computer.
Believe it or not, the process of payroll is incredibly complicated for companies. Many of them hire outside firms at great expense to ensure they’re accurately paying their employees in compliance with various state and federal regulations. One of the costs involved in payroll production is the printing of checks. Paper checks must be printed, signed and recorded, all of which requires labor.
The cost of writing, verifying and safeguarding a paper check is about $1 per employee per pay period, assuming no lost checks or pay disputes. The lost time to distributing and depositing those checks is about $2 per employee, so it costs businesses about $3 to print and distribute paper checks. Direct deposit costs about half as much.
These savings may seem insignificant, but they add up quickly. Your employer spending less money on payroll means more money to pay you. Whether those cost savings result in a lower-priced product, more investment in the business or higher wages, you benefit. When your employer comes out ahead, so do you.
Obviously, direct deposit saves you an errand every pay period. The stress of fighting rush-hour traffic to make it to a branch office before closing time on payday is considerable. There’s also no need to worry if you got your paycheck deposited in time for same-day processing. Say goodbye to account guessing games.
Beyond the obvious conveniences, direct deposit opens up a slew of other possibilities. You can more easily automate your savings by depositing a portion of each payroll into a savings account and the rest into your checking. You can pay bills more easily online since you get confirmation your funds are available. You may also be able to secure lower fees or a higher interest rate on your checking account!
Paperless payroll saves trees, it saves time and it saves frustration. It does all of this while being safer, faster and more secure.
If you’re unsure about your direct deposit options, stop by or call Azura Credit Union. Our helpful associates can get you the information you need to set up direct deposit and can even help you organize your deposits to meet your financial goals.