Riding the Fence on Direct Deposit

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In my previous article, I discussed the benefits of outsourcing payroll. Thinking about payroll led me to this week’s topic, mandatory direct deposit.

For an employer, direct deposit offers many benefits, including savings on the cost of check stock, reduced processing costs, improved security, and increased employee productivity.

In this modern age, nearly every employee sees the value of receiving a paycheck through direct deposit. It eliminates trips to the bank and waiting in line to cash a check on payday. There’s no waiting for funds to be available for withdrawal as can be the case with a paper check.

Yet, there are always holdouts who insist upon receiving a paper check. Among the reasons I’ve heard are, “I don’t trust banks (aka “I don’t have a bank account”),” “I don’t trust my employer with my checking account number,” and “I want to *feel* my paycheck.”

Of these justifications, the most important concern is being able to accommodate employees who aren’t served by the traditional banking system. Thankfully, the payroll processing industry has developed the paycard, which allows an employee to receive a payroll direct deposit to a Visa/debit/ATM card without having a bank account.

Beyond that, the cost of dealing with less rational concerns is all too real.

In a former life, I operated a multi-state retail chain, and paychecks were mailed biweekly to the outlying store locations. Almost always, they arrived by payday, but on the rare occasion when they didn’t, all hell broke loose. All productivity ceased. I remember dealing with the frenzied “where’s-my-paycheck?” telephone calls, but there seemed to be no way to sooth the pain my employees felt. The concern wasn’t “will-I-get-paid?”; it was “I-have-bills-to-pay-TODAY-and-I-need-my-money-TODAY.”

I always handled these conversations with empathy, but I also knew I wasn’t dealing with rational behavior. Our management team wrung its collective hands over the prospect of mandating direct deposit, but eventually we bit the bullet. As paternalistic as it sounds, we knew we had to protect our employees from themselves.

As you might expect, the initial response from the few holdouts was less than enthusiastic. On the other hand, the furor died quickly and we never again dealt with the frustration of an employee not being paid on payday.

If you’re allowing a few holdouts to control your payroll processing, my advice is to give plenty of notice and advise your employees that, effective on a certain date, payroll direct deposit will be mandatory. You’ll look back and be glad you made the decision.

 

Employment laws vary by jurisdiction. Before proceeding, be sure you are permitted to mandate direct deposit. Dan Weiss of Counterpart CFO is a licensed Ohio attorney who can help you make an informed decision on this issue.

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