A direct deposit authorization form is a form that employees fill out to authorize their employer to deposit money straight into their bank account. Direct deposit is the standard method most businesses use for paying employees.
It’s critical to get proper authorization to use an employee’s bank details for payroll before sending money. Otherwise, your business could find itself in legal trouble.
A direct deposit authorization form also covers all the bank account details that you need to know where to send a payment. These details can be entered directly into your payroll software, streamlining the process of paying your employees.
What is Direct Deposit and Why Use It?
Direct deposit is a method of sending money electronically to an individual’s bank account. For businesses, direct deposit replaces the time-consuming process of printing a check and then having an employee visit their bank to deposit that check.
Most employees today expect direct deposit as a payment option, so your business may be losing out on talent if you don’t offer it. It’s also highly efficient. Most payroll software platforms are set up to process direct deposit payments and can do so with just a few clicks.
What Information Should You Collect on a Direct Deposit Authorization Form
A direct deposit authorization form can be relatively simple. Here’s the information you should ask for on your form:
- Company details: Include your business’s name, address, and contact information. This affirms that an employee is knowingly authorizing your business to use their bank details for payments.
- Employee contact details: Ask for your employee’s full name, address, and contact details.
- Bank name: The name of the bank where the employee’s account is registered.
- Account number: The unique number of the employee’s bank account. This can also be found on a check from that account.
- Routing number: The nine-digit number that identifies the bank. This is available online or can be found on a check from the employee’s account.
- Account type: Employees should indicate whether the account they are using is a checking or savings account.
- Authorization: A statement indicating that the employee authorizes your business to use their provided bank details for the purpose of depositing payments into their account. This statement should begin with “I hereby authorize” and include a timeframe for the authorization.
- Signature: The employee should sign and date the authorization form.
It’s also a good idea to give employees the option of splitting up their paycheck among multiple bank accounts. In this case, you can simply provide multiple account information sections on your form. For each account, the employee should select the percentage of each deposit that should go into that account. Make sure the percentages add up to 100.
You’re not required to verify the bank information that an employee provides, but doing so can prevent a headache later if there’s a mistake. You can ask for a voided check for each account, which will show the bank name, account number, and routing number.
Once completed, an employee’s direct deposit authorization form should be stored in the confidential portion of their employee file. The form contains sensitive financial information that must be kept secure.
When to Ask for a Direct Deposit Authorization Form
Most employers ask employees to fill out a direct deposit authorization form shortly after they are hired, as part of the employee onboarding process. If an authorization expires after a certain amount of time, it’s important to have an employee fill out a new form before the old one expires.
If your business is offering direct deposit for the first time, you should ask all employees to fill out a direct deposit authorization form.
How to Set Up Direct Deposit
The process for implementing direct deposit will depend on the payroll software you use to pay employees. Most payroll software platforms support direct deposit and make it easy to enter the necessary information from your direct deposit authorization form.
It’s a good idea to keep a consistent payroll schedule. That way, employees know when they need to submit hours for each pay period and when they can expect to be paid. Your managers and accounting team will also know the cutoffs for approving payroll each pay period. Note that some payroll providers require data to be submitted several days in advance in order for direct deposits to process on time.
Paying Employees without Direct Deposit
Many employees opt into direct deposit payments and the Electronic Fund Transfer Act allows employers to make direct deposit mandatory for employees. However, for employees who don’t want to use direct deposit, there are ways to offer alternative payments.
- Physical checks: Most payroll software platforms enable you to print out physical checks. You can also write checks by hand and give them to employees to cash.
- Cash: Paying employees with cash is allowed and can offer a way to avoid bank transfer fees. However, it’s important to keep excellent records when paying employees in cash. The IRS looks closely at businesses that use cash for payroll.
- Digital wallets: You can also send cash to a digital wallet like PayPal, Venmo, or Apple Pay. However, this can be a hassle since employees need to sign up for these services and there may be fees for some transfers.
- Prepaid cards: Your business can load an employee’s paycheck onto a prepaid card, which they can then use like a debit card. Note that some prepaid cards charge high fees, both when loading the cards with money and when employees make transactions using the cards.
A direct deposit authorization form is a simple, but important form that enables you to pay employees by direct deposit. The form collects the bank details required to make payments and authorizes your business to handle that sensitive account information. Most payroll software platforms support direct deposit, making payments to your employees simple and fast.
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