Paying your employees is one of the most important things you do as a small business owner. Miss a paycheque, or mess up the amount, and you have upset employees who may start to feel less confidence in their jobs. When processing your business payroll, you have two main payment options: traditional paper cheques and direct deposit. Comparing the two options helps you decide which is best for your particular situation.
Paper Cheques for Business Payroll
Traditionally, employers print out paper cheques each payday in the amount of each employee’s salary minus tax withholding and other deductions. Employees either receive their paper cheques at work on payday or receive them in the post. Sending cheques is particularly common for employees who work remotely. Each employee then must take their cheque to the bank for deposit, and it may take some time for processing before the money is available.
Short-Term Employee Benefits
If you have short-term employees who may only be with your company for a few months, paying them with paper cheques may save you money and time. When you start using direct deposit, you need to enter all of the information about the employee in the system. That can take unnecessary time if you’re only going to be paying the person for a short period. It’s often more cost effective to simply cut a cheque for a temporary employee.
Easy Stop Payment Option
Even when you’re careful with payroll processing, you may occasionally make mistakes on the cheques you issue. Fortunately, you have the option to put a stop payment on a paper cheque if there’s an issue with it. Imagine that an employee loses their cheque or you notice an error in the amount of their pay. You can stop payment on the initial cheque and reissue a new one to correct the issue.
Increased Risk of Fraud
When you pay employees with paper cheques, you introduce the potential for fraud or loss. The cheque provides access to the money you owe the employee, and if someone else gains possession of the cheque, they can fraudulently sign and cash it. A lost cheque also presents an issue. That situation creates more work for you because you have to stop payment on the previous cheque and issue a new one. Plus, it delays the employee’s pay even longer. A lost or stolen cheque puts your company’s financial information at risk because anyone who sees the cheque can get your banking information.
More Time and Money Involved
You spend more time processing payroll when you use paper cheques. That’s because you have to not only calculate and generate your payroll information, you also have to actually print and distribute the cheques. Once you distribute the cheques, you have additional bookkeeping to handle because you have to reconcile the transactions after your employees cash their cheques. When you think of your work time in terms of the salary cost, you can see that the extra processing time costs your company money. You also have additional costs in the form of the cheques themselves and the ink used to print them. If you send the cheques through the post to your employees, you also incur postage costs.
Direct Deposit Payroll
Direct deposit is a payroll option in which the money electronically transfers into each employee’s bank account. Your employees provide their banking information, which you then enter into your payroll processing system. Each payday, you enter the specifics for that pay period, such as the number of hours worked, vacation time used, overtime, and other information that affects the paycheque amount. The system calculates taxes and other deductions. On the designated payday, the money appears in each employee’s bank account.
Because you eliminate the physical paper cheque with direct deposit payroll, you increase the security of payments. The money goes directly into the account provided by each employee, which means it can’t get lost or stolen on the way to the bank. When you send the payment electronically you also protect your bank account information, because your employees don’t get cheques with your account information on them.
Fast, Reliable Payments
When you use direct deposit for your small business payroll, you know the payments arrive reliably and on time. This is a big perk for your employees, who depend on getting their pay promptly. But keeping employees happy isn’t the only perk, although employee satisfaction does come with benefits, such as increased employee retention. Reliable payments can also help increase productivity around the office, since you don’t have to field calls about late paycheques. And because your employees know their money is already available, they aren’t distracted by the idea of having to find time to go to the bank.
Convenient Money Access for Employees
Your employees have more flexibility when their money arrives via direct deposit. They can opt to split the money between different accounts to allocate a portion of the money to savings or other accounts. Because the money arrives automatically, they get paid even if they’re absent on payday. The reliability of the payments and the instant access to the money once it hits the account means your employees can pay their bills on time and make purchases right away instead of waiting for a paper cheque to clear.
Reduced Work for Payroll Department
Once you enter each employee’s information into your system, payroll processing is faster and easier for whoever handles it. You no longer need to print, sign, and pass out the cheques, which can take a significant amount of time if you have a large number of employees. When you use an online payroll system, you can run payroll from anywhere, and you can look in on the payroll system at anytime from anywhere. Plus, you don’t have to mess with paper copies of payroll documents since you store the information virtually. You can eliminate some of the filing cabinets around the office when you go paperless for payroll.
Higher Potential Costs With High Staff Turnover
The fees charged for direct deposit vary depending on the program you use. Some charge each time you make changes to direct deposit participants. If you have high employee turnover or if you use temp employees frequently, this means you end up adding and removing employees often. That can increase costs due to associated fees. It also means more work for you or the employee who handles payroll, which means more salary dollars going to keep the payroll department running.
Issues With Bank Change Information
As long as employees keep their banking account information current, the money should deposit correctly each payday. But sometimes employees change banks, and they may forget to tell you before the next direct deposit goes out. This can cause delays in getting the pay to those employees on time. It also creates more work for you if employees change bank accounts, because you have to re-enter that information in the system. With a paper cheque, it doesn’t matter if your employees change banks, since their bank account information isn’t on the cheques.
Despite the benefits to them, some employees may prefer not to use direct deposit. They might worry about providing their bank account information, or they may just prefer the traditional paper cheque method of getting paid. Other employees might not have bank accounts. The key to making direct deposit efficient and cost effective is getting everyone on board so you can process all employee payroll the same way. You may need to use some persuasion to get everyone to use direct deposit.
Which Employee Payroll Option to Choose
So which payroll solution should you choose? The answer varies depending on what your employees prefer and your unique situation. If you have regular employees with relatively low turnover, you may find that direct deposit makes the most sense. If you rely primarily on short-term employees or you experience lots of turnover, you may find it easier to stick with paper cheques.
No matter how you handle payroll for your employees, you need a good system to manage the process. You can add payroll to QuickBooks Online to simplify the process with payroll data transferring automatically to your accounting software. 5.6 million customers use QuickBooks. Join them today to help your business thrive.