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Employers are using direct deposit for reimbursements, bonuses, pensions and more.It wasn't the dog that ate the lost expense check; it was an employee's kids who stashed it, along with the rest of the day's mail, in an out-of-the-way spot. Unfortunately, the kids' parents never saw it. When the father, a concerned Benchmark Medical employee, learned that the missing check had been mailed 10 days previously, the misdeed was tracked to the forgetful kids.
Today, there are no more mail misadventures for the 2,200 employees at Benchmark's 420 physical/occupational therapy and prosthetics centers because they now get travel and entertainment (T&E) reimbursements deposited directly into their bank accounts. That's a big improvement over the six to seven days it took for mail to reach them from the company's Malvern, Pa., headquarters to the West Coast, where more than half of Benchmark's employees live.
"With direct deposit, the money goes right into your account and you don't need to worry about it," says Bruce E. Phipps, a certified payroll professional who is director of disbursement services (accounts payable and payroll) at Benchmark.
Although 93 percent of Benchmark employees currently have direct deposit for their paychecks, employees still submit completed paper T&E forms to accounts payable. Accounts payable electronically feeds the information to payroll, and payroll forwards it to the company's payroll services provider for reimbursement on payday.
By mid-2007, Phipps plans to convert to all-electronic T&E, with employees completing forms online. In January 2007, Benchmark will eliminate its hard-copy mailing of biweekly pay stubs to employees' homes, for a savings of $50,000 per year (for postage, paper and labor). Employees can check their pay stubs online.
That kind of savings is one of the main reasons more employers are seeking the benefits of leveraging direct deposit for more than just payroll.
"Direct deposit is not a hard sell when you can justify a cost savings of that much," says Phipps. He adds that the company will realize additional cost savings in accounts payable when it begins processing T&E electronically.
More Payments, Less Paper
While payroll is still the dominant, overarching use of direct deposit, new direct deposit services include flexible spending accounts (FSAs), pensions, bonuses and incentives, commissions, and various advances. Experts say many employers are amenable to more paperless opportunities such as these.
"Once you have direct deposit for payroll, these things become an extension of that," says Rossana Salaris. Organizations have been "looking at ways to speed up payment process, and direct deposit is an easy way to do that." Especially in today's decentralized companies, where road warriors want to be reimbursed promptly, adds Salaris, vice president at the Electronic Payments Network in New York and a spokesperson for the association that governs such payments, NACHA, formerly the National Automated Clearing House Association, in Herndon, Va.
Tony Tortorella, vice president of human resources services/sales at Paychex, a Rochester, N.Y.-based payroll services provider, reports that FSA reimbursement is one of the largest uses of direct deposit for his customers after payroll, followed bydepending on the organizationT&E, pensions and other employee payments. (See " Going Direct".)
Not surprisingly, employees most often cite the ease of use and faster availability of funds as benefits for extending the use of direct deposit. And, employers love the savingsminimally it's 55 cents to $1.25 per eliminated paper check, according to various studies and experts.
Tony Gorman, SPHR, HR director at Texas State Bank in McAllen, Texas, says employees "see that things go a lot smoother, that they receive the funds faster and that there are fewer errors when they're able to submit the information electronically."
Using direct deposit for employee health benefits expenses cuts days off the waiting time for reimbursement, Gorman says.
In these days of sophisticated counterfeiting and identity theft, William Dunn, manager of government relations at the American Payroll Association in Washington, D.C., says another employee benefit of direct deposit is heightened fraud protection.
"Companies chose to automate T&E to gain control over a financial process that is typically manual to assure compliance and documentation [required] with Sarbanes-Oxley regulations and minimize the potential for fraud," says Chris Juneau, vice president at Concur Technologies, a supplier of software and online T&E processing.
When these transactions become paperless, it speeds up the process and reduces the risk of identity theft and fraud resulting from forms and checks lying around or being misused.
Trimming T&E Expenses
One of most prevalent uses of direct deposit is for travel and entertainment expenses.
At some companies, especially those with traveling services and/or sales professionals, T&E can be the organization's second largest controllable expensebehind payrollwith the cost to process one expense report averaging $45 to $50, according to research from Boston-based Aberdeen Group.
Working online, employees fill out expense reports that are pre-populated with trip data from the company's credit card issuer. Employees without corporate cards enter the information manually into online forms. The T&E system automatically routes the form once it is completed and sends out e-mail alerts to update employees about the status of their reimbursement request. Once approved, the request is paid by accounts payable directly to an employee's account. The total cost for Concur's T&E processing averages about $7 per expense report.
"The whole point about minimizing cash usage and mandating the use of the corporate card is to discourage fraud," explains Juneau, noting that employers also gain better control of and visibility into the process.
Employers are also responding to credit card firmsnotably Visa, MasterCard, American Express, Diners Clubthat offer several percentage-point rebates for prompt payments of corporate credit cards. Businesses can apply these savings to offset the cost of their T&E software/system.
Besides Concur, which partners with ADP payroll services, and the credit card issuers, companies providing the T&E software/hosted service include Necho Systems Corp., Gelco Expense Management and Ariba, along with large management software providers such as Oracle and SAP.
Expediting Pension Payouts
The fact that many retirees are increasingly comfortable with technology, and that they're geographically dispersed and mobile, makes direct deposit ideal for pension and 401(k) payouts, says Sue Bertone, a solutions specialist in the retirement product strategy group at Mercer HR Services in Norwood, Mass.
"Some retirees may not even have gotten their paychecks through direct deposit, but through the retirement process, they are now able to easily select that option," says Bertone, noting that for several of Mercer's larger clients, direct deposit participation for retirees runs as high as 85 percent. One customer recently launched a mail campaign aimed at boosting retiree direct deposit from 50 percent to 60 percent.
NACHA spokesperson Salaris says the Social Security Administration also has influenced direct deposit usage. "Social Security is out there, promoting not only Social Security direct deposit, but any kind of benefit payment direct deposit."
In addition to allowing employers to set up online retirement accounts that have automatic prompts for employees to choose the direct deposit option, today's web-based tools also make it easy for retirees to change their address and/or update personal information. And, from the employer's perspective, direct deposit prevents what can potentially be an expensive headache: tracking down returned checks, posting bank stop payments, locating retired employees, correlating its roster against death audits and generally reconciling retirement finances.
Banking on Direct Deposit
Payroll experts report that the expanding role of direct deposit is popular among employees of all ages, particularly younger ones, and with small businesses, which have traditionally relied on old-fashioned checks.
"You've got a younger employee population and the last thing they want is a check that requires them to go to the bankeven if it's a once-a-year bonus. They say, 'Why do I need to go to the bank when you've got my account number and know where my bank is?' " says Susan Feinberg at Tower Group, a financial services research firm in Needham, Mass.
Analyst Feinberg says today's expansion of direct deposit reminds her of the 1980s when large companies urged direct deposit for payroll and some with big internal programming staffs even automated T&E and other reimbursements. Now the Internet and affordable technology make direct deposit ideal for small businesses, which have either off-the-shelf accounting packages or banks that offer online systems for entering pay information and initiating direct deposits.
Small businesses are the most likely to still be distributing manual checks, or using a combination of bank and payroll accountants, explains Sonal Ghandi, an analyst at JupiterResearch in New York, which follows online commerce. "Today's much easier technology is helping them to get to direct deposit," says Ghandi, who sees banks seeking to become surrogate accountants for small and medium-sized businesses.
Some small and medium-sized businesses are finding banks, credit card issuers and software/services vendors scrambling to offer them new direct deposit and related services.
Both Ghandi and Feinberg foresee that banks will continue to offer more such services in the future, ideally linking together all of a firm's financial transactions and acting as a broker of all its information.
"We're in a competitive arena where banks are looking at providing not only basic payment services, but also more comprehensive services that will earn the loyalty of small and medium-sized businesses," says Feinberg.
Connie Winkler, who writes about HR and technology management from Seattle, has written two books on technology careers.
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