Our customer support is available 24/7:
What Is Direct Deposit Vs Physical Paycheck?
An employer can choose to pay an employee by direct deposit or with a paper paycheck. Before deciding between direct deposit and physical paycheck, do you know which is the ideal option?
By the end of this article, you'll be able to understand these paycheck options better. It explains the challenges and benefits of direct deposit vs physical paycheck. Also, you’ll learn how to set up a direct deposit account.
Direct Deposit vs Physical Paycheck: What Do They Mean?
Direct deposit is a method used by employers to pay their workers. With a direct deposit, they do not need to provide an employee with a paper check. It uses an electronic method called Automated Clearing House (ACH). The method allows you to transfer funds from one bank to another. In companies, employers and workers are now open to direct deposit.
Paper checks are actual checks that employers use to pay their workers. The funds the employees go to the bank to deposit are directly from the business's bank account. Although many individuals like their payments online, others still prefer their payments made as paper checks.
How Does Direct Deposit Work?
Direct deposit is reliable. It works by depositing employee's funds directly into their bank account. To implement direct deposit, you simply have to give your employer your bank name, account number, and bank routing number. Employees are also able to receive tax refunds, contributions, and benefits through direct deposits.
Challenges and Benefits of Direct Deposit vs Physical Paycheck
This section explains the benefits and challenges of direct deposit vs physical paycheck:
Benefits of Direct Deposit
Direct deposit has a number of benefits that make it easy, faster, and more secure to manage your finances. Below are some of the benefits of direct deposits:
Convenience: With direct deposit, forget about losing your paycheck or taking a trip to the bank. As soon as you're paid, the money goes into your account. You can spend it right away. Even if you're on vacation or working away from home, you'll still receive your money.
Saves Time: You just do not have to go through waiting in line or dealing with lengthy bank hours anymore. The moment you receive your paycheck, you can check it out immediately.
Security: Direct deposits remove the risk of your paycheck ending up in the wrong hands. It has security measures that protect your information and keep everything safe.
Your money is protected: Your money is insured by the FDIC. That is, your money is protected. You can be sure your paycheck is secured.
Challenges of Direct Deposit
Extra Costs: Direct deposit is not entirely free to use. There may be other costs, like bank transaction fees when paying to employee accounts. You might be charged to use certain payroll software, too. You need to consider if your business is able to bear such extra costs.
Timing: Direct deposit is appropriate if employers are able to make payroll on time. If employee data or filing payroll is delayed, the money won't arrive in time. There will be a delay in transferring money to employee accounts when it is payday. This is actually frustrating, and you may even have to pay extra.
Benefits of Physical Paycheck
Great for short-term jobs: If the employees are on transient employment or if their work obligation is seasonal, cashing checks is best. Employers won't have to start onboarding freelancers and contractors into a payroll system. That is convenient and hassle-free.
Flexible Payment: Not everyone has a bank account or desires to have pay sent online. If you want to cash your pay yourself or prefer a paper paycheck, this option is great for you.
It's easy to cancel if needed: Companies occasionally goof and enter the wrong number or send a check to the wrong person. In a paper paycheck, banks give you a chance to reverse the transaction before it's cashed. That way, you can correct the error and send out a replacement with no back-and-forth whatsoever.
Challenges of Physical Paycheck
Time-consuming: Using paper checks can be quite slow. You would have to print every check and then mail it. This takes a lot more time than using direct deposit.
Additional expenses: To issue physical checks, you would need to spend additional costs. For example, buying check paper and maintaining the printer to handle check printing. You then need to pay people to handle, sort, and distribute them. There's also the cost of mailing if you're sending them out. All these expenses can add up quickly when you can easily avoid them with digital payments.
Risk of getting lost: Paper checks get lost easily. It could get misplaced or delivered to the wrong address if it is sent through mail. And if a check is lost or stolen, more time and money would be spent canceling it and issuing another one.
How To Set Up Direct Deposit
If you're open to using direct deposits, follow this detailed process to set up a direct deposit:
Select a Direct Deposit Option
You can either use your current bank or a payroll software that allows direct deposit. If the software doesn't use direct deposits for payroll, they must do manual transfers. This method incurs extra fees.
Fill Out the Required Forms
To get started, most banks will need employers to agree to ACH terms and send in required documents. This is to show that they have enough funds to handle payroll. If you have a payroll provider, you need to share your company details and bank information. Unless it is already on file, note that your employees need to sign an agreement before you can set up this direct deposit.
Gather Employee Banking Details
Employers have to get each employee's account type, bank name, account number, and routing number. This is done by using a direct deposit form.
Enter and Upload Employee Information
If the payroll system is one where employees can input their information, then the process should be easy. The employer must submit the correct banking information to their banks. One method of doing this is by exporting a NACHA file with all the needed information.
Confirm Payroll Dates
Some banks or payroll companies require employers to submit their payroll before payday. So, ensure that the direct deposit schedule matches their pay cycle. If it doesn't, adjust the calendar accordingly.
Run Payroll
Once everything is in order, the earnings are directly deposited into employees' accounts on payday. However, employers are required to adhere to the payment regulation of employees by state. It would be done state-by-state, where all employees are employed.
In Closing
Many employees now want their wages through direct deposit. So, we can say direct deposit is better. It is time-saving, fast, and reliable. It is a great payroll management solution for employers as well. Therefore, it saves time and reduces paperwork. Direct deposit is a safe and convenient method of payment.
We offer a direct deposit feature to simplify payroll management. Our pay stub tool provides an easy method for employees to get paid through direct deposits. Use our tool today and experience simple payroll.
