Direct Payroll Vs Dedicated BACS Systems

For businesses, options for processing payroll usually come down to a choice between direct payroll and a dedicated BACS system. This article explores what each option means, what it can offer to your business, and the potential risks it could involve.

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What Is Direct Payroll And How Does It Work?

Direct payroll is one of the most common methods of paying employees. With this method, employees receive their employee’s banking information upon hiring them and will deposit wages to their bank account each pay period. This allows employees to receive their wages wherever they are, as they can be assured the money will be in their bank account. This is often thought to be a convenient method of payment as no cheques need to be filled out and distributed. Some payroll software allows you to complete direct deposits with no added costs, while without software companies will usually have to pay direct deposit fees.

What Is A BACS Payroll System And How Does It Work?

BACS stands for Bankers’ Automated Clearing Services and it is responsible for the schemes behind the clearing and settlement of UK automated payments. BACS usually is orchestrated through an accredited bureau, that is then authorised to send instructions to BACS on behalf of the employer. On a pre-arranged day, the BACS bureau will debit the employer bank account and credit employee bank accounts. It should be noted that BACS only operates on official banking days, so will not debit or credit payments on weekends or bank holidays.

The Benefits And Risks Of Each Method

Direct payroll offers some benefits in that it is a safe method of paying employees. It can also be a more convenient option for companies, and the process is easily organised by the employee in charge of payroll. However, the fees that can be associated with direct payroll could be seen as unnecessary for a company when there are more cost-efficient options available. Direct payroll can also lead to mistakes and human error, and in 2016 UK businesses lost £737 million due to payroll mistakes. For instance, there are complicated and frequently changing tax codes involved in payroll processing, so it can be tough for employees to stay up-to-date on the changes and deliver accurate payslips.

BACS is one of the most cost-effective methods for making payments and it is operated by trustworthy and reliable software, meaning payments are never missed for as long as the employer has sufficient funds in the registered bank account. It is also a benefit that every payroll system is capable of supporting BACS files. However, BACS payments only clear on business days and there can be strict cut-off times.

The right payroll method for your company will differ per company, but when it comes to security and reliability BACS is the most effective option. eSlip Payroll Services provides a simple and accurate BACS payment service that ensures all employees are paid on time, every time. Contact us and find out more about how our services can help your business.

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A Free Guide To Outsourcing Your Payroll