Paper Check VS Direct Deposit: Which Is The Better Way To Pay Your Employees?

The paper payroll check has a long and venerable history. For much of the 20th Century, it was the default method of payment for employers. Starting in the early 1970s, though, direct deposit came onto the scene. These days, around 82% of employees get paid via direct deposit.

That doesn’t mean that direct deposit is right for every business. Maybe you only employ a few people. Maybe your employees expressed a preference for checks. If you’re debating on check vs direct deposit for payroll, keep reading. We break down some of the major pros and cons of check and direct deposit.

Paper Checks Pros

One of the key benefits of a payroll check vs direct deposit is employee privacy. A check lets employees keep their banking information to themselves.

Paper checks also let employees cash their checks with a service, instead of through a bank. As an employer, you can also use a check stub generator instead of relying on homemade forms or payroll software.

Paper Checks Cons

Paper checks come with some downsides. People can lose a payroll check or damage it in some way. That leaves you with the problem of cutting them a second check.

A physical check also has a lot of sensitive business information on it, such as:

  • Business name
  • Business address
  • Bank routing number
  • Business bank account number

All of this information creates some potential for fraud if the check falls into the wrong hands.

Direct Deposit Pros

After the initial setup, direct deposit is a fairly straightforward process. You submit the numbers to the bank, and the bank makes the transfers. This also protects the business’ banking information.
It also saves everyone time. You avoid the time of printing up and handing out checks.

Employees avoid any check processing time at the bank since funds become available immediately. Depending on your bank and number of employees, the cost of direct deposit vs check typically balances out over time or favors direct deposit.

Direct Deposit Cons

One pitfall of direct deposit is that employees must provide you with sensitive banking information. That requires that you maintain substantive digital protections for that data. It also limits employees’ privacy options.

Direct deposit requires that employees maintain a bank account. Not every person has a bank account. Some people can’t open one because of poor credit. Plus, many states forbid mandatory direct deposit or restrict it in other ways.

Deciding On Check VS Direct Deposit

For many businesses, the check vs direct deposit debate is moot. The business always uses direct deposit unless there is some compelling reason not to for a specific employee.

For other businesses, it’s less obvious. Setting up direct deposit takes time, effort, and there are fees. If you only cut two or three paychecks per pay period, checks might make more sense.

You must consider the advantages and disadvantages of both for your situation. That said, most employers find that the advantages of direct deposit outweigh the disadvantages.

Looking for more information on digital finance or eCommerce? Check out our Tech and Fintech section on this site.

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