In order to offer voluntary benefits, the employer you work with has to collect the employee’s premiums through payroll deduction. However, while some employers might not have a problem with you seeing their employees, they might not want to do the payroll deduction for you. In those cases, you could collect the premiums through premium direct deposit instead. In this article, I’m going to go through what premium direct deposit is, how it works and some other things you need to know.
What is premium direct deposit?
How does premium direct deposit work?
Requirements to make premium direct deposit work
- Direct deposit slot While most employers are already direct depositing their employees paychecks, employees may already be splitting to multiple accounts. If an employer is limited to two direct deposits slots, and the employee is using both, then it’s not possible to direct deposit any more accounts.
- Third party administrator A third party administrator is needed to manage the premium direct deposit accounts.
- Added administration costs The third party administrator will add additional costs to enrollments that will need to be paid by the employee, the benefits broker or the insurance company.
- Individual products Only products that are offered as individual contracts are best suited for premium direct deposit. Group insurance, since it’s an agreement between the employer and the insurance company, should be payroll deducted if it requires employee contributions. Permanent life insurance is a type of product that would lend itself better to premium direct deposit since the actual contract is between the employee and insurance company.
- Approval from the insurance company If it’s an insurance product, the insurance company will need to ok the collection of premiums via premium direct deposit. Their guarantee issue underwriting offer is contingent on how you set up your case.
- Deductions that stay the same from month to month Premium direct deposit won’t work well if payments vary. A fixed amount per direct deposit is that only needs changed once a year or so is ideal.
- A backup collection method The ability to collect premiums via electronic funds transfer at the same frequency of the employees paycheck as an alternate collection method if the employer will not allow premium direct deposit.
Advantages to premium direct deposit
Disadvantages to premium direct deposit
The main disadvantage with premium direct deposit is the added cost to implement it. A larger employer might also view a sizable number of direct deposit initiated at one time just as they would a payroll deduction even though once it’s initiated it requires little additional maintenance.
Another disadvantage would be that premium direct deposit is still an employee initiated transaction. You’ll need to be proactive in the initial setup of an employee’s premium direct deposit as well as any future adjustments.