Electronic Payment vs Traditional Business Checks for Employees Payroll

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Providing payment to your employees is one of the most important concepts in owning a business. This is commonly done in one of two ways, by using traditional business checks or direct deposit. Both methods of payment have positive and negative aspects that should be considered when deciding on a primary compensation system for your employees.

Traditional checks are a time-tested form of payment. They require only that a company account be set up from which to draw the checks, and from there paying your employees is as simple as filling in the appropriate information. While checks are most often deposited into a bank account when received, some employees may choose not to work with a traditional banking institution and cash their checks instead. Providing a paper check as payments gives your employees more freedom to decide how they want to access their money.

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Paper checks have negative aspects as well. Checks must be cut each week by dedicated personnel in your finance department, and employing such personnel represents an added expense in what may already be a tight company budget. Paper checks must either be collected in person or mailed to the recipient, both of which can result in scheduling issues delayed payment. Paper checks can also be lost or stolen once issued to the employee, which creates added hassle in providing a replacement. 

Direct deposit is the newer form of employee compensation. It involves establishing a direct deposit program at your bank, then linking the bank accounts of each employee to it so that payments can be disbursed on a fixed schedule. The payments are transferred into your employees’ accounts automatically with or without their presence that day, and a direct deposit program requires little maintenance once set up,, which allows you to retain only necessary financial department personnel. This along with the eliminated material cost of cutting checks can save even a small company thousands each year. Most employees enjoy benefits from a direct deposit program as well. The electronic payments clear more quickly than paper checks, they do not have to visit a bank or ATM to access their funds and it provides them with convenient money management options, as the direct deposit payment can be divided between any number of personal accounts. Direct deposits also cannot be lost, stolen or fraudulently produced, making them the most secure option for both employee and employer.

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image courtesy of Gualberto107 – FreeDigitalPhotos.Net

Direct deposit payments have a few drawbacks as well. Some employees may not have traditional checking or savings accounts, which makes providing direct deposit payment for them difficult if not impossible. Direct deposit programs often require a fee to set up. Banks also widely charge a processing fee for each employee every pay period for the service of direct deposit.

There are multiple ways to make sure your employees are compensated fairly for the service they provide. Paying your employees with traditional paper checks offers them the most flexibility, but direct deposit is a quick and efficient way to settle your payroll obligations each pay period. The ideal payment system for your business depends on your preference and the needs of your employees.

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