A direct deposit is a popular method of transferring money from one bank account to another. Done using electronic means, DDs have several advantages over a paper check, which may be lost, stolen, or held up in the mail. As a quick & secure alternative to traditional payment methods, they are often the preferred choice for both employers & employees.
But before you process one, you need the payee (in this case, an employee) to allow you to send funds straight into their designated bank account. This is a legal requirement under the Electronic Transfer of Funds Act, which regulates all electronic money transfers in the US, including direct deposits. In particular, Regulation E of EFTA protects your employees against any unauthorized fund transfers to or from their bank accounts, which is why you need a formal authorization step before disbursing their salaries!
For this purpose, we have designed a Direct Deposit Authorization Form template that allows you to record employees’ multiple bank account details, take a copy of a voided check, and obtain formal authorization to process direct deposits. Our fillable sections help you collect all the necessary data and verifications you will need to successfully set up a direct deposit!
How Our Template Works
Our template is free to download and easy to fill in. Here’s a step-by-step guide on how to navigate your way around each section of our pre-made form:
Employer details
Supply basic information about the company, including its full legal name and contact details such as email ID, phone/fax number, and postal address. This information makes sure that both the employee and bank representatives have a way to reach out to you in case of any concerns or clarifications.
Employee details
This section records basic employee details such as their name, position at work, and employee ID (if assigned one at the time of joining).
Also, ask your employee to share their Social Security Number. HR or accounts departments of a company need this for tracking earnings and processing government benefits such as healthcare.
IRS income reporting
Lastly, make sure the employee has provided their contact details, such as their phone number, mailing address, and email. This information is used to verify your employees’ identities.
Financial Institution Details
Whether you are sending money to a bank or a credit union, you need basic account information to process a DD payment.
Once you have identified the name of the bank, you will need to add the following details:
- Account Number: The unique number of the employee’s bank account. This can also be found on a check from or through their online banking portal.
- Account Type: Ask employees to specify the type of account the money is being sent to. Our form lets you choose between a Checking or a Savings account.
- Routing Number: Also known as an ABA number, the routing number is a nine-digit identification number associated with each individual bank. You can find it on the bank’s physical checks or on their website.
Sending money to multiple accounts
Most employees want their entire salary sent to one account. But sometimes, they might want it to go to different accounts. That’s why our form gives you the option to identify multiple bank accounts. Once you have added account details, you will need to specify what share of the salary is to be transferred into each.
For each bank account, our form allows employees to choose from one of three options:
- Full payment: All the funds will be transferred to one designated account.
- Partial payment: If they choose this option, they will need to enter the exact amount of money they want transferred to two different accounts.
- % of Payment: If they choose this one, they will need to specify what portion of the paycheck the employee wants to transfer to each account, expressed as a percentage of the total payment. Make sure the numbers add up to 100.
In the U.S, different states have their own regulations when it comes to limiting the number of accounts an employee can designate. In most states such as California, Texas, Florida and New York, you must give the employees an option to designate multiple bank accounts (usually up to 2 or 3).
The voided check requirement
To ensure a smooth transaction, you will need to verify the bank information provided by the employee. This can be done through a voided check, which shows the bank name, account number, and routing number, which you can tally up with the form.
Use checkboxes to specify if a voided check has been attached to the form or not.
Authorizing statement
In legal terms, this statement made by the employee is the heart of the form. By agreeing to this statement, the employee authorizes a named individual (to be filled in by the user) to transfer the funds to their designated bank account(s). Feel free to consult a lawyer for more advice on this.
Signatures
Employees must add their dated signatures to make the form legally binding. By signing the form, the employee acknowledges that all the information provided in the form is accurate & up-to-date, while authorizing employers to process financial transactions directly into their designated bank account(s).
What’s Next?
Once signed by the employee, the form must be securely kept in their employee file as it contains sensitive financial information. You can either complete this form online and submit via email, or print it out and complete by hand. Either way, keep additional copies in case you lose the original form.
Points to Note
- The DD Authorization Form is usually filled out during the onboarding process. This information allos new employees to be integrated into the company payroll system.
- In case of any changes in their banking information, employees must be instructed to fill out a new form to reflect these changes.
- DDs require the use of special electronic networks known as automated clearing houses (ACH). The National Automated Clearing House Association (NACHA) governs these networks and issues specific guidelines that must be followed.
- DD forms are typically needed when receiving payroll earnings, disability benefits, or other types of subsidies and payments. However, this template is only designed to process funds transferred under employment contracts.
- Compared to checks, direct deposits are quicker, more environment-friendly and better secured. Businesses also save money by reducing the costs associated with printing and mailing paper checks, as well as the expenses related to handling returned or lost checks.
Download & use our fillable Direct Deposit Authorization Form NOW to streamline the process of paying your employees!
Summary
A Direct Deposit is a method of electronically transferring funds to employees’ bank accounts, eliminating the need for issuing cheques. To facilitate this, the employer must obtain the employee’s permission and banking information. This information is documented in the Direct Deposit Authorization Form. Additionally, the employer typically requests a voided cheque along with the authorization form to verify the accuracy and validity of the employee’s banking details. Directly depositing salaries into employees’ bank accounts enhances efficiency and simplifies payroll processing for employers. It also mitigates issues such as delayed salary payments due to employees being on leave or the risk of cheques being lost or stolen. This form is an essential component of HR documentation and the employee onboarding process. While employees complete the form, its primary users are HR personnel, who utilize it to streamline salary disbursement.
