For employees and employers alike, a direct deposit has become one of the most popular – not to mention convenient – ways to get paid. You don’t have to worry about paper checks that can be lost or stolen; nobody needs to stress about how long money will take to hit someone’s account. Everything is handled quickly and easily, exactly the way it should be.
The process itself requires what is called a direct deposit authorization form. This is important for several key reasons, all of which are worth exploring.
What is a Direct Deposit Authorization?
As the name implies, a direct deposit authorization form is a document that allows a third party to deposit money directly into someone’s account. If an employee does not authorize getting paid in this manner, an employer will have no choice but to continue to issue paper checks.
When Is It Required?
A direct deposit authorization form is required whenever an employer sends money directly to an employee’s bank account. This is typically done to get the employee their paycheck.
Types of Direct Deposit Authorization
There are two main types of direct deposit authorization forms:
- Those that require a voided check.
- Those that do not require a voided check.
How to Add an Employee to Payroll
Adding any new employee to your business’s payroll is a relatively straightforward process, but it does require you to keep a few essential things in mind.
Collect Relevant IDs
First, collect all relevant identification information from the employee, especially for tax purposes. You’ll need to obtain their name, address, contact information, and Social Security number. All this information should be given to your organization’s human resources department to ensure they get correctly added to the system.
Determine Their Employment Status
Then, you’ll need to determine the official employment status of the worker in question. Will they be an employee or an independent contractor? This will decide whether or not you need to provide them with employee benefits or take state and local income taxes out of each check on their behalf, so be sure to weigh the pros and cons carefully to make the decision that best fits your needs.
Have Them Complete the Appropriate Forms
At this point, you’ll want to ensure the employee fills out a W-4 form for income tax purposes and anything else your human resources department needs. All of this is critical so that you can begin to schedule pay periods and coordinate tax withholding with the IRS.
How to Set Up a Direct Deposit
You can also take this opportunity to set up direct deposit so that the employee gets paid as quickly as possible. Choose a direct deposit payroll provider that you feel comfortable with. Once your employees are added to the payroll system, you can choose your set schedule and handle each person on a case-by-case basis. Just ensure you have employees fill out a direct deposit authorization form to let you handle their paychecks in this fashion.
How to Fill Out a Direct Deposit Authorization Form
When filling out a direct deposit authorization form, there are several critical pieces of information that you will want to include.
Start With Contact Information
Perhaps most importantly, there should be a section at the top of the direct deposit authorization form that includes headings so that the contact information of the various parties involved can be provided. That consists of the full name, address, phone number, fax number (if applicable), and email address of both the employer and the employee. Employees must also provide their Social Security and identification numbers for additional validation.
There will also be information about the financial institution where the direct deposit will occur. Routing and account numbers need to be provided, and the type of account (whether a credit or debit account) will need to be specified.
The Authorization Process
The middle section of the direct deposit authorization form authorizes the employer to deposit all payments due to the employee into the accounts listed elsewhere on the form. It also allows the employer to take any corrective action that may be necessary. An example of this would be a debit if the employer accidentally deposited too much money into the account.
Signing and Dating
Finally, the employee can sign and date the form in a section at the bottom.
Direct Deposit Authorization Sample
Below, you can download a Direct Deposit Authorization template in PDF or Word: