Employees have come to expect their employer to provide them with a paperless pay option. It has led to significant demand for direct deposit payroll services. In addition to reducing the need to distribute physical checks, direct deposit can help reduce costs associated with reissuing lost or stolen checks and stopping payment charges.
What is a Paycheck?
A paycheck is a cheque that an employer gives to an employee for services rendered. It might be delivered on paper or electronically deposited into the employee’s bank account. It also includes a paystub, which provides details about the net pay that’s available to spend. Paystubs can include information such as the amount paid, taxes withheld and other deductions. Many employers now offer direct deposit to employees who wish to receive their earnings digitally rather than traditional paper checks. This method of payment is efficient and secure. It allows employees to access their money as soon as it’s credited to their account — without waiting for the mail or risking losing a check.
Employers should know how to set up direct deposit and how it works. To set up direct deposit, an employee must provide an organization with their banking information, including their bank account number and routing number. This information can usually be found on their checks or in their bank’s online portals. Sometimes, an employer might request that employees provide a voided check when setting up a new direct deposit arrangement. Employees can use the money they earn from their paychecks to cover expenses, make loan payments and even put some money away in savings accounts. But some people may need help to meet their financial obligations and live paycheck to paycheck, which can be stressful if it’s too long between payments or emergencies arise.
What is Direct Deposit?
A payment mechanism known as direct deposit electronically moves money from the employer’s business bank account into the employee’s personal bank account. This process eliminates the need to receive paper checks by mail or in person and can be much faster than traditional methods. To set up direct deposit, an employee will typically provide their name, bank account information and other details as their employer requires. Employees may also be asked to attach a voided bank check or deposit slip to verify their account information and ensure the correct data is transferred.
Once direct deposit is activated, money will be automatically sent to an employee’s bank account on preset dates. The deposit date is usually listed as the business day following the pay period the employee is being paid. Some employers allow employees to split their direct deposit into multiple accounts so that a portion of each paycheck can be deposited into a savings account, for example. It can be a great way to build an emergency fund or save for retirement. Employees can request their money deposited into multiple accounts during the sign-up process. This option can help many people keep their cash safe and avoid fees from overdrawn checking accounts.
What is a Pay Stub?
A pay stub (also known as a payslip, paycheck, payroll slip, and wage statement) is a document that provides information on an employee’s wages and deductions. It is an essential tool for employees to help them understand how income taxes, contributions, and deductions affect their gross earnings and net pay. It also serves as proof of employment and income, often required when applying for credit or loans, renting an apartment, or receiving public benefits.
A basic pay stub will include the following:
- An employee’s name, address, and social security number.
- The date of the current paycheck.
- The pay period.
The pay period refers to the time frame that the paycheck covers—for example, a biweekly paycheck would cover two weeks from the previous pay date. It will then list the employee’s gross wage amounts before any deductions are taken out (e.g., federal and state income tax and FICA). The pay stub will then show the employee’s net pay amount for the current paycheck and year-to-date net pay. A pay stub will typically also show the total number of hours worked for the pay period. It is important for hourly and nonexempt salary employees, as it enables them to keep track of their hours and ensure that they are getting paid correctly. It may also be helpful to note any overtime or double-time hours worked. In addition, the pay stub will list any other deductions, such as health/life insurance premiums or contributions to a company-sponsored retirement plan.
What is a Pay Statement?
A pay statement (a paycheck stub) shows how your gross and net earnings were distributed. It also lists deductions made from your gross pay. The stub is typically given to the employee with the check or is available digitally. Employees need to understand their pay statements, especially if they use direct deposit. Payroll statements may contain a variety of information, depending on the needs of the department and the employee. The statement will include your name, current address and phone number on file, your pay period start date and end date, and the bank business date of when your money will be deposited (if you have direct deposit). Your gross pay is your earnings before taxes and other deductions are removed. If you work hourly, the stub will also list your total hours worked for each pay period. The stub will then display your gross pay due to those hours and your hourly rate times the number of hours. Your net pay is your actual take-home pay after all deductions are applied. It is common to see your net pay for the current pay period and year-to-date on your stub. In addition, some lenders will review your pay stub to evaluate your creditworthiness when applying for loans or mortgages.