Setting up direct deposit starts with choosing a payroll system that handles ACH transfers. Most small businesses use platforms like Gusto, QuickBooks Payroll, or similar services that manage the actual bank transfers for you. If you’re paying employees, you need a real payroll solution. Manually wiring money to employee accounts isn’t payroll and creates tax compliance issues.

Collect authorization forms from each employee before their first direct deposit. California law requires written consent before depositing wages into someone’s account. The form needs to include the employee’s name, bank name, routing number, account number, and their signature. Many payroll platforms let employees enter this information through an online portal, which cuts down on paperwork and reduces data entry mistakes.

Before running the first real payroll, verify the bank information works. Most systems send a prenote, a zero-dollar test transaction that confirms the routing and account numbers are valid. This takes 2-3 business days. Skipping this step risks failed deposits and scrambling to issue paper checks when payday arrives. A San Diego bookkeeper can help configure your payroll system correctly if you want to avoid learning through trial and error.

Configure each employee’s payment method in your payroll system. Select direct deposit as their pay type and enter their verified bank details. Some employees want to split deposits between accounts, like sending a fixed amount to savings and the rest to checking. Most payroll platforms handle splits without issue.

Plan for processing time. ACH transfers aren’t instant. You’ll need to submit payroll 2-4 business days before payday depending on your provider. Missing the submission deadline means employees don’t get paid on time. Build this lead time into your payroll calendar from the start.

Keep copies of all authorization forms stored securely. If an employee disputes a deposit or claims they never authorized direct deposit, you need documentation. These forms contain sensitive banking information so treat them accordingly.

Employees can change their direct deposit information whenever they need to. When someone switches banks or wants to update their allocation, they’ll provide new authorization. Update the information in your payroll system before the next pay run to avoid deposits going to closed accounts.

If you’re new to running payroll, payroll setup and training walks you through the entire process including direct deposit configuration, California compliance requirements, and how to handle ongoing payroll runs yourself.