Direct Deposit: New Reasons to Use an Old Favourite

Now more than ever, both large and small companies are looking for ways to reduce expenditures and improve efficiencies. Luckily, they do not have to look too far. An old favourite – direct deposit – can help companies and employees do just that.

Direct deposit has been offered for more than 40 years and is the most widely used type of electronic payment. All companies can realise significant savings by offering direct deposit and maximising participation. Businesses saved a total of US$6.7bn over the last 10 years by switching employees to direct deposit, according to a 2009 study by NACHA, the electronic payment association.

Leaving Money on the Table

While most large companies offer direct deposit for payroll, not all of their employees take advantage of this valuable benefit. Of those with access to direct deposit, 20% still do not use it, according to a 2008 study by Consumer Federation of America (CFA). With an average annual savings of US$176.55 per employee, companies are losing money by not encouraging 100% participation.

Many companies also do not offer direct deposit for expense reimbursements, pension, bonus payments and pay for hourly employees. These payments are easy to convert to direct deposit and will further increase savings for the company.

Unfortunately, some small- and medium-sized businesses still do not offer their employees direct deposit. They think that this method is cost prohibitive. The truth is, not only does direct deposit save businesses valuable time and free up their employees for other tasks, it also saves small companies a significant amount of money each year.

To assist in quantifying an organisations’ savings, a direct deposit cost calculator is available on electronicpayments.org. This tool provides the ability to determine a company’s potential annual savings based on its specific goals. There are also a myriad of tools on the website that can help start and/or promote a direct deposit programme.

Help Your Employees Start Saving Money

A company can provide more value to employees with direct deposit by ensuring to offer the chance to split their direct deposit between a chequing and a savings account. It can be one of the easiest ways for employees to start a consistent savings programme by depositing just enough in their chequing accounts to cover their expenses and automatically depositing the rest into their savings account through a split direct deposit.

Only 59% of employees that have access to, and use, direct deposit, have the option to split their pay. A 2006 survey by NACHA showed that consumers who use direct deposit save US$90 more per month than those who use another method to save. Automatically saving a few dollars per pay period, if left untouched, will grow over time providing employees with a fund that can come in handy for emergency, vacation or holiday expenses.

Good for the Environment, Good for You

According to the PayItGreen Alliance, not only is direct deposit simple, safe and smart, it’s also green. If all companies that already offer this method would just switch over the remaining 20% of employees that do not use it, annually they would:

• Save 11,082,971lbs of paper.
• Avoid the release of 105,709,380 gallons of wastewater into the environment.
• Save 4,105,889 gallons of petrol.
• Avoid the release of 31,581,675lbs of greenhouse gases into the atmosphere.

And for companies that do not offer direct deposit, the environmental benefits of switching are significant. If a business that issues paper cheques to 300 employees every two weeks switched to direct deposit, in one year it would:

• Save 121lbs of paper.
• Avoid the release of 1,159 gallons of wastewater into the environment.
• Save 45 gallons of petrol.
• Avoid the release of 346lbs of greenhouse gases into the atmosphere.

Your Employees Approve

Employees want to use direct deposit now more than ever. Two out of three employees now use direct deposit, according to the 2008 study by the CFA. That’s a 20% increase over the past 10 years. However, almost 22 million employees still do not have access to direct deposit. Of those who do not have access to direct deposit, three out of four employees said they would use it if they had the option.

A Win-Win Situation

The benefits of direct deposit save the company and employee’s time and money, and the positive impact on the environment benefits us all.