Beginner's Guide: How to Set Up Direct Deposit for Small Businesses

Managing payroll takes up a lot of time for small business owners. Writing checks, tracking down employees for signatures, keeping records, and calculating taxes all take manual effort that can add up quickly.

That’s why many employers choose direct deposit for small businesses. Direct deposit moves funds electronically from your business account straight into employees’ bank accounts, saving time and reducing errors. In this guide, we’ll explain how to set it up step by step.

What is Direct Deposit?

Direct deposit is the electronic transfer of wages into an employee’s bank account. Instead of receiving a paper check, employees get paid directly into their checking or savings account on payday.

Why You Should Offer it

Offering direct deposit helps your small business streamline payroll. It reduces paper use and the risk of lost or stolen checks. For employees, it provides faster access to wages and eliminates the hassle of depositing checks in person. In today’s workplace, most workers expect the convenience of direct deposit. It's a step you can take to stay competitive as an employer.

How to Set Up Direct Deposit: Step-by-Step

Small businesses can work with their bank, payroll provider, or HR software to get started. Here’s a step-by-step guide:

Step 1: Choose a Direct Deposit Provider

Decide whether you’ll set up direct deposit through your bank or a payroll service. Banks may charge lower fees but offer limited features. Payroll providers often include direct deposit as part of a larger payroll system.

Step 2: Verify Your Business Bank Account

Your provider will confirm that your business checking account is set up and eligible to process Automated Clearing House (ACH) transfers.

Step 3: Collect Employee Authorization Forms

Employees must give written permission for direct deposit. Most providers require an authorization form signed by the employee.

Step 4: Enter Employee Bank Information Into Your Payroll System

Add each employee's account and routing numbers into the payroll system. Double-check entries to avoid delays or errors.

Step 5: Run a Test Transfer

Many providers require a small “pre-note” transfer to verify account information, which helps prevent payroll issues later.

Step 6: Process Payroll With Direct Deposit

Once you have verified the accounts, you can pay employees electronically each pay period. Funds typically appear within one to two business days, depending on the bank or provider.

For many small businesses, payroll software speeds up this workflow and adds flexibility. With Justworks Payroll, employees can enter their own bank account details directly in their accounts. It reduces the time spent chasing down paperwork. The platform also supports multi-bank account direct deposit, allowing employees to split their paycheck across multiple accounts.

Required Information to Set Up Direct Deposit for Small Businesses

Gathering this information up front keeps payroll accurate and prevents delays. You’ll need the following:

• Bank Name: Confirming the correct bank name helps your payroll provider match the routing number to the right institution.

• Routing Number: Each bank has a unique set of numbers for different regions or account types. Employees should provide the number printed on their checks or verified by their bank.

• Account Number: The employee’s personal identifier within the bank is unique. Entering even one digit incorrectly can cause transfer issues. Double-checking this number during setup prevents delays.

• Account Type (Checking or Savings): Employees choose which account receives their deposit. Some may split deposits across multiple accounts. They might opt to send part of their paycheck to savings for long-term goals, for example.

• Employee’s Signed Authorization Form: Employees must complete and sign this form before you begin processing payroll electronically. It confirms their consent to receive payments via direct deposit and protects your business from compliance risks.

Encourage employees to provide a voided check or a direct deposit form from their bank. These documents help verify routing and account numbers and reduce the chance of data entry errors.

Benefits of Direct Deposit

Setting up a small business's direct deposit payroll has advantages on both sides. Here are some examples:

Employees

• Get fast and reliable access to wages

• Don't have to make extra trips to the bank

• Can split deposits across multiple accounts

• Reduce their risk of lost or stolen checks

Employers

• Deliver faster and more reliable payments

• Reduce administrative errors

• Lower costs related to check printing and distribution

• Improve their payroll recordkeeping and compliance

Employees value efficiency, and offering this payroll method demonstrates that your company takes their time and financial well-being seriously.

Simplifying Payroll With Direct Deposit and Justworks

Switching to direct deposit for small businesses is one of the most effective ways to save time and make payroll easier for everyone involved. When you set up direct deposit, you streamline workflows that benefit both your business and your employees while maintaining an accurate and sustainable payroll system. With Justworks, you don’t have to handle payroll on your own. Our payroll services simplify direct deposit payroll. Dedicated support teams help you stay compliant. Ready to save time and minimize errors? Get started with Justworks today.