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How to set up direct deposit for your employees

Step-by-step instructions for quick digital payments.

Direct deposit is a reliable, convenient and speedy way to pay your employees. But it isn’t free, so you’ll want to weigh the costs before signing up.

How to set up direct deposit for employees: A step-by-step guide

The steps required to set up direct deposit might look different depending on the method you use, but here’s what you can expect:

Step 1: Choose a direct deposit provider and sign up

Decide whether you’re going to use your bank or business software for payroll. If you’re using a bank, you can usually sign up in person or through your online account. With payroll software, signing up for direct deposit will likely be integrated into the account setup process.

Step 2: Collect info from your employees

Your employees need to sign a form authorizing you to pay them electronically. You’ll also need to collect the following information from each of your employees:

  • Name of their bank
  • Bank account number
  • Bank routing number
  • Whether the account is a checking or savings

If you use an HR software, it could help you manage this process, as employees can likely log into their account to authorize payment and provide their bank account details directly. Otherwise, you’ll need to manually gather this information.

Step 3: Enter their info into the system

If you manually collected your employees’ bank account information, you’ll have to do this step manually as well. Enter your employees’ bank account information and save it to the system.

Step 4: Plan your direct deposits

Share your pay schedule with your provider and employees so they know when to expect the money.

Step 5: Run payroll to send the money

Once the direct deposit service is activated and verified, you’re ready to pay your employees. This process differs slightly depending on whether you’re using a bank or business software provider, but generally takes less than 10 minutes.

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How does direct deposit work?

Direct deposit is when your business deposits a payroll check directly into your employee’s account. It’s entirely digital and automatic, meaning your employees won’t have to manually accept the money and you won’t have to physically sign a check.

When you send money via direct deposit, it goes through the Automated Clearing House (ACH). The ACH facilitates transactions between financial institutions in the US. It’s a common payment method for employers of all sizes, and is popular because it reduces the amount of paperwork required to run payroll.

How much does setting up direct deposit for my employees cost?

The cost of direct deposit depends on which provider you use. In general, you’ve got two options — your bank or payroll software.

If you use your bank to send the direct deposits, fees might include:

  • Setup fee. It’s only charged once when you enroll your business in direct deposit.
  • Transaction fee. Charged every time you send money to an individual employee’s account.
  • Monthly fee. Charged according to the billing cycle.

Some banks don’t offer direct deposit but partner with a payroll provider that does. Bank of America, for instance, sends its customers to ADP for their direct deposit needs.

On the other hand, if you use payroll software to facilitate your direct deposits, the fees depend on the software you choose — though direct deposit is generally included in the price. For example, with Intuit QuickBooks Online Payroll, direct deposit is a service provided at no extra cost.

Real world cost example

Let’s say you have a small business bank account with Wells Fargo and are sending 10 direct deposits to pay employees in a one-month period. Wells Fargo doesn’t charge a setup fee, but it charges $0.50 for direct deposits made to non-Wells Fargo personal bank accounts. Its monthly service fee is $10 a month.

The math?

(10 x $0.50) + 10 = $15

That means you’d pay around $15 monthly using Wells Fargo for direct deposit.

If you signed up for Intuit Quickbooks Online Payroll services, your fees would be $13.50 per month, plus $4 for each employee as of April 2020.

The math: ($4 x 10) + $13.50 = $53.50

That means you’d pay around $53.50 using payroll software for direct deposit. Though it costs more than our bank example, you’re also getting several services such as:

  • Full-service payroll that includes automated taxes and forms
  • Auto Payroll
  • Health benefits for your team
  • Expert product support

While using your bank for direct deposit may be cheaper on the surface, it might be worth considering payroll software if you can take advantage of its other services.

Pros and cons

Weigh out the details of direct deposit to determine if it’s in your best business interests.


Businesses frequently use direct deposit to streamline the payment process. A few reasons why it’s popular:

  • Convenient and reliable. Your employees will know exactly when and where their money is sent, which can help them more accurately manage their finances.
  • It saves you time. Paying your employees via direct deposit can be as simple as running payroll — which you can manage whether or not you’re at the office. It’s quicker than writing and signing checks or counting out cash.
  • Electronic records for everybody. Both you and your employees keep a digital payment history that’s easy to keep track of — with no physical bookkeeping required.
  • More secure than check or cash. It’s too easy to lose or misplace cash and checks, posing a risk to both you and your employees. On the other hand, the ACH has strict standards to make sure that the direct deposit process is safe and secure.


Before signing up for direct deposit, consider these drawbacks:

  • Incremental added payroll cost. Direct deposit doesn’t come free, and the fee increases with each employee that signs up.
  • Less flexibility for employees. Your employees must commit to receiving the money in the same bank account, which could be inconvenient if they use multiple accounts or switch banks.

Bottom line

Direct deposit is an easy and straightforward way to pay your employees, though you’ll have to ensure the fees associated with it make sense for your business. The right payroll software can make the process painless.

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