If you’re a business owner or manager looking to pay your employees with direct deposit, figuring out where to start can be a little tricky. For instance, should you start by talking to your bank? Or, maybe your accounting software provider? The short answer is: you can talk to either.
Since there are many different accounting system providers, I’m going to stick with what I know best—sending your direct deposit through the bank.
How do I send the payments?
First off, a “direct deposit” is actually a type of “ACH” transaction, which stands for “Automated Clearing House.” ACH is a classification that banks use to categorize a certain type of electronic transaction, and there are even sub-classifications under the ACH umbrella, but it’s not critical that you know all of those.
Now, most banks will offer two ways for you to send your company’s ACH payroll, and both routes can usually be done within the bank’s online banking system.
Uploading a NACHA file
Uploading a NACHA file is perhaps the easiest way to do your payroll via direct deposit. “NACHA” stands for National Automated Clearing House Association, and within this context, applies to the standardized file requirements that are used throughout the banking industry to receive and interpret ACH transaction information.
A NACHA (.txt) file can usually be exported (from your accounting software) and uploaded (through the bank’s online banking). The bank’s system will know how to read the file, recognize the employees’ account numbers and routing numbers, as well as the payment amounts. Once uploaded, the company usually has the opportunity to review the file to make sure there were no mistakes.
Manual Batch Entry
Don’t let the word “manual” scare you. It’s actually not nearly as time-consuming as it might sound. For companies whose accounting systems don’t already provide a NACHA file exporting function, or for companies with less than 20 employees, the batch entry option is quite user-friendly. How does it work?
Within most banks’ online banking systems, a company can be set up to add payroll batches. A batch is made up of each individual payee (Ex. employees #1 through #20). The online banking system saves the employee’s routing number, account number and payment amount. Once you’ve entered this information—the “manual” part—it’s easy to send your payroll each pay period. Depending on whether or not your employees are salaried or hourly, you can change the dollar amounts each pay period.
When will my employees get paid?
The amount of lead time required for you to send your ACH payroll can vary by bank. Most banks (but not all) offer next day ACH processing. For example, with Central National Bank, if you send your payroll prior to 3 p.m., your employees will be paid the next business day. However, you can also schedule out ACH payments multiple days ahead of time. So, if you know you’re going to be out of the office during a pay period, you can schedule your payroll to send long before you hop on that 7-day Caribbean cruise.
How much does a bank charge for ACH services?
Honestly, it depends. If you’re worried about cost being an issue, usually, any applicable ACH-related fees can be justified by 1) increased efficiency (in no longer cutting paper paychecks) and 2) the benefit provided to employees.
That all sounds great. How do I sign up?
ACH services are usually housed in a bank’s treasury management or commercial services department. You’ll want to contact someone and visit with them about your needs. If you want to speak with someone at CNB about ACH processing, let us know.
To set up your ACH services, the bank is going to ask that you sign and agree to their ACH terms and conditions. Part of these terms and conditions will state that you agree to only send ACH payments to individuals who have given you authorization to electronically send money to their account. This means that you will need a signed authorization form for each employee. (For more information on ACH forms, check out this article we posted a few months back.) Also, since ACH services add some risk to the bank, you might also be asked to provide your latest business financials.
If you’re on the fence about getting started with ACH, I highly recommend you consider giving it a shot. I think you’ll find that it’s a lot easier than you think, not to mention, your employees will be thrilled that they no longer have to drive to the bank each pay period.
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