Those direct-deposit paydays

First, there was the pay envelope, full of cold, hard cash. Then came the paycheck, full of cold numbers, including a chilling record of the tax collector's share.

Now comes the pay blip. Actually, it's been coming for more than a decade, but in the last year or so, a growing number of employees have given up their paychecks in exchange for direct-deposit programs. Instead of a check, several computers tell each other to credit the worker's bank account with the pay. Instead of the person's having to wait until he or she can get to the bank and stand in line, the money is usually in the account early in the morning on payday.

Much of the credit for getting people to give up the need to hold a pay envelope or paycheck in their hands goes to the United States government, not always known as the great innovator in business matters. While the US Treasury did not invent direct deposit, it has promoted the idea well enough for social security and other government checks that people are at least familiar with the idea.

For several years, television and print ads have promoted the convenience and -- more important -- security of having government checks deposited directly in bank accounts. Some of the ads have shown the problems the elderly face when they have their checks delivered to mailboxes at home. Muggers are often part of the scene in these ads.

The warnings seem to have helped, although the number of people using direct deposit is still a minority. Last year, the Treasury reported, 31 percent of the more than 770 million payments for social security, railroad retirement benefits, veterans' benefits, and federal salaries were made electronically.

Signing up for direct deposit of federal payments is easy; you simply call or write the Treasury Department's Financial Management Service, ask for a form, fill it out, and take it to your bank.

Because direct deposit is 60 to 80 percent cheaper than a teller or mail deposit for banks to process, some banks offer their own incentives to get people to participate in either government or private-sector programs. Some waive monthly service fees on checking or NOW accounts, or eliminate minimum-balance requirements.

One of the main reasons people don't sign up for direct deposit is a concern that those computers will foul things up. The problem, sometimes called ``technofright,'' is not limited to the elderly or those getting government checks.

``A lot of people did check their bank balances that first Friday we had the program,'' says Judith LaRocque, payroll manager at Hasbro Industries Inc., the Pawtucket, R.I., toymaker. ``And I was one of them.''

Hasbro started its direct-deposit program Feb. 1, Ms. LaRocque said. It was preceded by several steps to make sure it would work well. In one of these steps, called a ``pre-notification,'' the employer sends a deposit order for zero dollars to each employee's bank. These pre-notifications go though the National Automated Clearing House (ACH), a system of some 30 branches that link more than 17,000 financial institutions. This is especially helpful for a company like Hasbro, with salespeople and divisions all over the country.

Until the employer gets back an acknowledgment of its zero deposit, it won't begin transferring any pay into these accounts, says Jill Henderson, an assistant vice-president at Bank of Boston.

The first time direct deposit is offered to employees, only 30 to 35 percent of the workers sign up, Ms. Henderson says. ``But when the company comes back six months or a year later and word of mouth gets around, the participation often goes up to 70 or 80 percent.''

That's what happened at Xerox Corporation. Direct deposit has been in effect there since the mid-1970s, says Alfred Beausey, manager of payroll operations. About 85 percent of the company's 60,000 employees have their pay ``wired'' into more than 7,000 banks.

There have been some proposals in Congress to make direct depoisit mandatory, at least for government checks. That may be impossible for private-sector checks, Henderson notes, because not all banks are members of the ACH system, and workers can't be forced to use ACH-member banks.

In most cases, Mr. Beausey says, the ACH will reimburse the workers against any losses that result from pay going to the wrong account or not getting there on time. If more help is needed, the employers may reimburse the employee for things like bounced-check fees. This is the practice at Xerox, he says.

Direct-deposit programs also offer the chance to have your pay go into more than one account, even at different banks. Some people have most of their pay sent to a checking account and a little bit wired to savings.

Direct deposit is spreading beyond government checks and paychecks. Many mutual funds make electronic dividend and redemption payments, and some corporations use it to send dividends to shareholders.