Keeping direct deposit enrollment rates up has positive implications for both an employee and employer. Time, money and frustration can all be spared if employers offer direct deposit, and if employees utilize the benefit. Even more is the fact that your employees have a unique opportunity to kick-start their financial wellness by using direct deposit as a financial strategy — which in turn creates increased engagement and productivity for an employer.
First, let’s explore one of the most obvious benefits for an organization to boost direct deposit enrollment: the impact on a business's bottom line.
The vast majority of Americans appear to receive their paycheck via direct deposit. In the 2017 "Getting Paid in America" survey by National Payroll Week, data shows that 93.74% of the 34,869 respondents receive their paycheck via direct deposit. The next most popular answer is paper checks at 4.30%. So, while enrollment tends to be high, there is still room for improvement.
If your organization is representative of this sample size, and about 4.30% of your employees still use paper checks, you could be paying a heavy price for a small pool of employees. The true cost of a paper check can range from $4 to $20 based on the amount of postage, shipping, and packaging required.
If you have 2000 employees and cut paper checks for 4%, that means 80 employees require increased payroll costs.
80 employees multiplied by the lowest scale paper check ($4) is an additional $320 per pay cycle - at the very least. If your pay schedule is bimonthly, this additional cost can add up to nearly $8,000 in additional payroll fees each year, for only 4% of your employee base. Improving your enrollment rate by even 2% is a meaningful reduction.
It’s not just an employer’s bottom line that can be improved through direct deposit. Employees can also use this benefit as a financial strategy.
Employees can automatically split deposits into different accounts, which is a great way to maintain financial wellness. Employees can set a fraction of their paycheck into a savings account, and leave the remaining balance in a checking account to cover bills and living expenses. Taking the "pay yourself first" is relatively common, too. 43.63% of the respondents in the “Getting Paid in America" survey actually apply this method. Continuing to encourage this strategy as part of a financial wellness program can set the framework for a financially stable workplace.
Additionally, many banks charge fees if an account drops below a minimum. Direct deposit helps stave off this type of fee. Some banks may even waive the fee if they see a consistent flow of money being deposited into an account. Encouraging smart banking habits is a great way to ensure employee financial wellness.
Of course, financial wellness benefits a business’ bottom line, too. One study estimates that unhappy employees are 10 percent less productive compared to happy employees who are 12 percent more productive than baseline.
Not having to travel to deposit a check, or skipping the line at the bank saves time.
While it may seem that this point is irrelevant - technology has made it easy to deposit checks without driving anywhere - the divide between those who have deposited a paycheck using a smartphone or tablet is almost equal. 45.88% of those surveyed in the National Payroll Week study have never deposited a paycheck using a smartphone. Heading to a local branch is still very much a part of your employee’s routine.
Employees with paper checks may be incentivized to leave work early or take long lunch breaks on payday to deposit their checks. Direct deposit eliminates this workplace distraction and allows for improved productivity on payday.
Even worse, if an employee is "unbanked," meaning he or she does not have a bank account, he or she will be forced to use a check casher which involves fees either by percentage of the check or by transaction. Direct deposit directly saves your employees money.
Direct deposit makes it convenient to pay employees, on payday, regardless of their location. Should something popup - vacation, bad weather, emergency - and an employee is unable to receive or deposit their check in a timely manner, financial issues can arise.
In the same survey by National Payroll Week, 33.78% of respondents would find it somewhat difficult to meet financial obligations if their next paycheck was delayed for a week, and 37.3 would find it very difficult. That means that roughly 72% of participants would find it very difficult or somewhat difficult to meet financial obligations if they are unable to deposit their paycheck.
Another obstacle that creates the inability to deposit a check is if it’s stolen or lost. And the number of times this happens each year is shocking. There is room for human error on the employer and employee side. Checks are passed from hand to hand at every step of the payroll process.
Direct deposit eliminates the option for losing a check, and the inability to make it to the bank to process a check making it an increasingly valuable service.
Setting up direct deposit is fairly easy for employers, especially if you outsource payroll to save money. Direct deposit also opens the doors for payroll add-ons that can help boost employee engagement and loyalty.
Now that you know direct deposit is important for your business, how can you get your employees to ditch paper checks? Check out our guide on getting employees to sign up for direct deposit.