A lot of business owners were not happy when some banks introduced a check cashing fee for individuals cashing payroll checks. This happens when your employee doesn’t have a personal checking account at the same bank that the payroll check is drawn on, namely your business bank. As a business owner, you probably think this is ridiculous. And as you have found out, the bank is serious. These days it is an accepted practice. A fee in the $2-$5 range is typically charged for each paycheck cashed.
There are several reasons why banks have pushed this policy. First, if your employee is standing in line in a branch, he is taking up a space in line in front of real customers. Real customers keep money in the bank and use the bank’s services, which in turn creates profit for the bank. Second, the more bodies you can drive out of the branch, the less it has to be staffed. Third, banks will contend that if the employee is not an account holder, the bank must take extra time to properly identify them to not pay on a potentially fraudulent item. Lastly, banks urge business owners to offer Direct Deposit to their employees so that the employees will not need to come in and cash their paycheck. Makes sense, right?
It makes sense if all of your employees have checking accounts, and sometimes they don’t. Or it makes sense if the non-bankable employees can have their pay deposited onto a payroll card but this requires your bank to offer payroll cards, which sometimes they don’t. (If they do, the price may be a bit steep for you). You might be surprised at how many folks still like to get a paycheck. And there are many businesses with hourly employees where the time cards are not tallied in time to make the deadline to send Direct Deposit payments.
Most banks aren’t very flexible with this policy. To get an exception, you need someone at the bank to champion your case, fill out the proper forms, and go up a couple of levels in the chain of authority. This might be more than your banker is prepared to do for you.
My suggestion to you would be to definitely offer Direct Deposit. This is a very basic benefit these days and it just makes life easier for everyone. You can send these payments through your bank’s online banking portal or you can export a payroll file from your payroll module within your accounting software package. You may have to buy an upgrade from your software provider. You will want to make sure you have the ability to create a standard NACHA (National Automated Clearing House) formatted file. From there you will be originating an ACH Credit file. Let your bank know that you wish to do this and let them know what your average net payroll typically runs.
Using Direct Deposit should take care of most of your employees, but there still may be a few who will receive paychecks. Knowing that they have to pay a check cashing fee may motivate them to sign up for Direct Deposit. Otherwise, they will have to cash the item at their bank. Another alternative is to look for a bank that does not require a fee for cashing checks. You could just keep your payroll account there but don’t overlook the possibility of moving your operating account as well. Your employees would appreciate it.