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What Is The Best Way to Pay Your Employees, Direct Deposit or Check?

What Is The Best Way to Pay Your Employees, Direct Deposit or Check?

When you own a business, one important payroll decision you need to make is whether you’re going to pay your employees by direct deposit, check or offer both of those options.

Each has its benefits, but direct deposits to an employee’s account tend to be the better option.

Why Direct Deposit Is the Superior Option for Business Owners

There are two significant advantages direct deposits hold over checks: cost and convenience.

When you give your employees checks, you need to write out all your checks and sign them. If you mail checks to your employees, that’s another step in the process, and you’ll need to pay for stamps and envelopes. The time and money you spend adds up, especially if your business has many employees that you need to pay.

Another option is hiring a third-party payroll company to print the checks for you to deliver to your employees.

Compare that with direct deposits. You’re not spending time or money issuing your employees’ payments every month. You can set up direct deposits for an employee quickly and easily with just a voided check.

There are far fewer security risks with direct deposits than they are with checks. Checks can end up lost or stolen, and if a criminal is able to cash one, it’s a lengthy, frustrating process to dispute the transaction. Stopping payment on checks and reissuing them is something that costs you money.

Checks will also have your business’s bank account number and routing number at the bottom. A criminal could try to use this information to commit fraud.

From a bookkeeping perspective, checks can create more work, especially if you have employees who aren’t prompt in depositing their checks. Your bookkeeper will need to keep track of the money you’ve paid out before it’s actually withdrawn from your business’s bank account, which isn’t the case when you pay via direct deposits.

Going with checks is the not the best choice for the environment, as well. Paper checks just create more trash. Although paper can be recycled, the planet is much better off when businesses go the paperless route with direct deposits.

Benefits for Employees

There are also several ways direct deposits benefit employees. While checks don’t cost employees anything like they do your business, one similarity is that direct deposits are much more convenient for your employees.

When you issue direct deposits to an employee’s bank account, they don’t need to worry about going to the bank and depositing anything or scanning checks using their banking mobile app. It’s one less errand your employee needs to handle.

Direct deposits may be available to employees sooner than deposits made via checks. While direct deposits can take a few business days after they’ve been issued, once a company has made multiple direct deposits to an employee, those deposits typically clear much faster. With checks, there could be a minimum waiting period, depending on the bank.

Employees don’t need to worry about being home or at the office to pick up their checks when direct deposits are an option. If they’re sick or on vacation, they’ll still receive their pay.

Benefits of Issuing Checks to Employees

Even though direct deposit is the better of the two payment options, checks also have a few of their own unique benefits.

The biggest advantage checks have over direct deposits is that they’re an option for employees who don’t have bank accounts. While most people have bank accounts, there are those who don’t, and you make it easier on those employees when you offer checks as a payment method. They won’t need to go open a bank account just to receive their pay from work, and can instead cash their checks.

If there are any mistakes made regarding pay or you need to stop a payment for any other reason, it’s much easier to do so with checks than with direct deposits. Let’s say that your payroll department makes a mistake and either pays an employee too much or too little based on the hours worked. With checks, you just stop the payment and issue a new one. You typically can’t cancel direct deposits, which means you need to reconcile the error with your employee. It’s unlikely for direct deposits to go to the wrong account, since they’re set up with voided checks, but if something is entered incorrectly, it will also be a hassle to reverse direct deposits to the wrong account.

Checks are the better option for short-term employees who will only be working for your business a few weeks. If you hire an independent contractor or a seasonal employee that won’t be with you long, it doesn’t make sense to spend valuable time getting them set up with direct deposits. In this case, eating the cost of issuing checks is better, as those are the simpler option.

The Way to Go Is Offering Both Options

Even though there are some advantages to issuing payments via check, direct deposits are the much better option overall.

However, just because one is better doesn’t mean you should only offer that. If your payroll department can handle it, it’s better to have both direct deposits and checks available as payment options for your employees.

While most employees will prefer direct deposits, there are a select few who would rather get checks, primarily those who don’t have bank accounts and don’t want to get them. When you have both payment options available, you can accommodate all your employees and keep satisfaction high.

If you can only offer one, then you should stick with direct deposits. In the long run, it will save your business time on payroll processing and money on payroll expenses. Those are the most important factors, and they’re two areas where direct deposits are much better than checks.