May 22, 2006, 12:44 PM — With the recent increase of incapacitating natural disasters, the role of the IT professional has become even more important in ensuring that a company will be able to function in a crisis situation. One of the most vital responsibilities is to keep the payroll system running even if there is a total loss of records, computer systems or electricity.
In order to do this, it's essential that companies use direct deposit for payroll and other employee payments such as travel expenses and pensions. One of the major problems in the aftermath of Hurricane Katrina was that people paid by checks had no access to their money. On the other hand, people paid through direct deposit were paid on time automatically. Many employers shy away from direct deposit because they incorrectly believe that it will be hard to implement and overlooking the significant annual cost savings - for both small and large companies.
May is Direct Deposit Month and there is no better time to demonstrate how IT professionals can play a major role in making the transition to direct deposit run smoothly.
The technical setup for direct deposit is a one-time expense and is not a very complex process. A company that is interested in setting up a direct deposit program should first contact its financial institution or payroll processor (e.g. ADP or PayChex) to determine the technical requirements. All of the technical specifications for creating a direct deposit file are contained in the NACHA rules. There is an abundance of low cost software on the market that will take data in a variety of formats and convert the information into standard NACHA formats and files for creating direct deposit entries. An example of this is www.treasurysoftware.com and www.ezdd.com/index.html.
To improve speed of recovery in a crisis situation, all financial records should be backed up at a remote location. Payroll records in particular are extremely important. Making sure employees are paid under any circumstance is vital to the long-term success of the company. It's important for an IT professional to have a contingency plan in place for payroll. For instance, know how to access the backed-up files and software and keep a computer in a remote location. This will ensure that the payroll records can be recovered and the payroll will be processed in the case of crisis. If the company uses an outside payroll service, this service will have copies of the records.
Once the company's payroll records are in place, the automatic transfer of the payroll will go on without interruption. Direct deposit travels on the ACH Network, a payment mechanism that has been in place for more than 30 years. This network already has technical transaction formats in place and stringent rules around those. This is the same network that banks use to send money to each other. This network is safe, secure and will never be shut down in case of a natural disaster.
Employers might also resist offering direct deposit because they think their staff is too small for the service to be efficient. If this is the case, send them to the business section of www.electronicpayments.org to see the benefits of offering the service, not only to their employees, but also to the bottom line of the company.
Even if a business has fewer than 50 employees, it can realize substantial cost savings and operational improvements by using direct deposit. Considering the cost of processing, printing and mailing a check and the cost of lost time for employees to manually deposit their checks, businesses can save more than $2 per transaction by using direct deposit versus paper checks. For a large company, this can mean millions of dollars of savings per year. And a small business can save thousands of dollars each year -- with little effort - depending on the number of employees.
For more information on the technical aspects of direct deposit or the ACH Network, go to www.nacha.org. For more information about the benefits of direct deposit or to access a direct deposit implementation check list, visit www.electronicpayments.org.
