Working Capital Management (Wiley Corporate F&A) by James Sagner
Author:James Sagner [Sagner, James]
Language: eng
Format: azw3
ISBN: 9781118933848
Publisher: Wiley
Published: 2014-08-21T00:00:00+00:00
PAYROLL DISBURSEMENTS
ACH direct deposit is the principal method now used by companies for payroll, although checks are still issued when requested by employees. The widespread acceptance of this payroll mechanism has been a fairly recent phenomenon, assisted by active promotion by banks and employers, and by the obvious advantages of convenience and day of pay access to the funds.
Mechanics of Direct Deposit
The employee provides a voided check to his or her employer at the time of employment or later enrollment. The transit routing and bank account data from the bottom of the check are used to build a file record. Depending on the arrangement with the disbursement bank, the ACH transfer is made one or two days before the pay date, assuring that good funds will be in the employee's account on the pay date. Alternatively, an outside payroll service calculates the amount of net pay and the various deductions (including tax and employee-paid benefits), and transmits a file of these data to the bank that is used.
The leading payroll services are ADP, Paychex, Administaff, and Trinet Group. The primary advantages of direct deposit are:
Low cost to the employer, as the cost of an ACH is about 15 cents (vs. about $5 to issue and reconcile a payroll check).
Reduced employee absence, as there is no reason to leave company premises to deposit or cash the payroll check.
Convenience for the employee, as the pay is in the bank regardless of weather, vacation, business travel, or the loss of the payroll envelope.
The funds are credited to the employee's account, the earnings on which, depending on the type of depository account, may or may not pay interest for his or her benefit. However, earnings on deposit accounts are fairly nominal, so this should be a minor consideration.
Fraud prevention, as there is no need to verify the identification of an employee attempting to cash a payroll check.
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