Accounting Best Practices, Fifth Edition

17–17. Use Direct Deposit

A major task for the payroll staff is to issue paychecks to employees. This task can be subdivided into several subsidiary steps. First, the checks must be printed—though it seems easy, it is all too common for the check run to fail, resulting in the manual cancellation of the first batch of checks, followed by a new print run. Next, the checks must be signed by an authorized check-signer, who may have questions about payment amounts, which may require additional investigation. After that, the checks must be stuffed into envelopes and then sorted by supervisor (since supervisors generally hand out checks to their employees). The checks are then distributed, usually with the exception of a few checks that will be held for those employees who are not currently on-site for later pick-up. Finally, the person in charge of the bank reconciliation must track those checks that have not been cashed and follow up with employees to get them to cash their checks—there are usually a few employees who prefer to cash checks only when they need the money, surprising though this may seem. In short, there are a startlingly large number of steps involved in issuing payroll checks to employees. How can one eliminate this work?

The solution is to pay by direct deposit. This best practice involves issuing payments directly to employee bank accounts. Besides avoiding some of the steps involved with issuing paychecks, it carries the additional advantage of putting money in employee ...