How to Set Up a Direct Deposit for Your Employees

A direct deposit, commonly referred to as a direct credit, is a fully automated transfer of funds from one bank account to another, and in the context of payroll, setting up a direct deposit for your employees can be beneficial for both parties.

Just like any process in the business world, however, employers are required to set up the direct deposit process for each employee on the payroll in order for them to consistently and reliably receive their salary.

Going about setting it all up isn’t exactly difficult, but it is important that you are not only aware of what you’re doing and how to do it but also that you have all the relevant information you need, otherwise you’ll have to come back and do it all again.

Direct deposits work slightly differently from one country to the next, and in the United Kingdom (UK), direct deposits are completed using the Bankers Automated Clearing Service (BACS), managed by the Bacs Payment Schemes Limited.

Companies that offer payroll software in the UK include:

1. Rippling
2. Pento
3. Deel

Steps for Setting Up Direct Deposits for Employees

 

Successfully setting up direct deposits is reliant on the employer to initiate and follow through with the process in the correct manner, as well as on the employee to provide them with accurate details.

If the employer has all the information required, going about setting up direct deposits is actually fairly straightforward.

 

1. Decide Between Internal Payroll or an External PSP

 

Once this information is consolidated, it’s time to contact your payroll service provider (PSP). They’ll be able to do the whole process for you. However, if your company does payroll internally, you’ll need to ensure that the payroll software you use can handle Bacs payments and is HMRC-approved.

If you opt for the latter, you’ll be able to avoid having to go through the whole process of ensuring that your business is a Bacs-Approved Bureau. If you’d like to do it all yourself, it’s a bit more complicated. You’ll also need to set up a specific bank account that supports Bacs payments.

An additional requirement for making direct BACS payments (internally instead of via an external PSP, that is) is the submission of a Service User Number (SUN). A SUN can be obtained from your bank, and essentially, it’ll give you access to actually making the direct Bacs payments.

 

2. Gather Employee Details

 

Once you’ve decided whether you’re going to do direct deposits internally or via a PSP, you’ll need to gather your employees’ information. The information required is fairly basic, but it’s all important and, of course, out to remain confidential.

You’ll need the following details from each employee:

 

• Name of payee
• Name of bank
• Employee bank details
• Sort code of employee

 

To avoid dealing with unnecessary hassles setbacks, make sure that all the information you receive regarding employee details is correct. If you make an error, you can always go back and make corrections, but it makes it all significantly more time consuming and tedious.

 

3. Submit Employee Information

 

Once you’ve got all the information required, you’ll need to input the information into your payroll software if you’re doing everything internally, or you’ll need to submit the information to your PSP.

Either way, once again, make absolutely sure that you don’t rush the process, as it’ll only cause you headaches down the line.

Some types of payroll software actually attempt to mitigate the risks of errors cropping up later by introducing a bank verification process immediately once the information has been inputted. If the software you’re using does this, you can simply follow the prompts to complete the verification process.

 

 

4. Schedule Payments

 

Scheduling payments is mostly about adhering to your own company’s payroll schedule, so ensure that you know exactly what that is before you start submitting payroll information.

Bear in mind, however, that Bacs payments tend to take up to three days to be processed, so it’s essential that you factor that timing in when considering your business’s payroll schedule.

The reason it takes three days is that the payment instruction needs to be submitted via the software, then from the software, it needs to be processed by Bacs, and finally, the funds are transferred.

 

5. Do a Test Run

 

It’s not essential, but it can be a good idea, especially for large companies with many employees, to conduct a test run with a small batch of employees before submitting the whole organisation’s direct deposits.

Essentially, this will set the process in motion for the few people you’ve selected as guinea pigs and it’ll allow you to pick up any errors, for instance with timing, before everybody is affected.

If you have a small staff, however, this probably isn’t necessary, but it’s never a bad thing to play it safe, especially if it’s the first time you’re doing employee direct deposits internally.

 

6. Consistent Management

 

From there on out, if all information has been submitted correctly and the scheduling is functioning as you intended, things should run smoothly with employees receiving their direct deposits on the correct dates consistently, without hassle.

It’s wise, however, to inform staff that if any of their personal details change, however, they need to inform management immediately so that it can be edited within the payroll software before the next payroll cycle. Employers can easily access employee information and make amendments where neccessary.

Generally speaking, it’s always wise to keep an eye on payroll and the schedule to ensure everything is  running smoothly, and it’s advisable to encourage employees to notify you if they notice anything not working as it should. For instance, incorrect amounts, late payments and so on. This is important because the sooner you know there’s an issue, the sooner you can fix it.

 

Setting Up Bacs Direct Deposits Yourself

 

Making use of the direct deposit, or direct credit, system has the potential to make your payroll routine super efficient and far more reliable than making regular manual payments.

With Bacs, you can rest assured that the payment process and all employee details will be totally secure, reducing concerns regarding security issues.

Overall, the process for setting up direct deposits is easy, whether you’re using a PSP or your own payroll software. And, although sorting out your direct deposit service, gathering employee information, inputting it and scheduling payments may seem like a lot of work initially, once it’s done, you’ll save a lot of time and improve the overall process tenfold.