1. Physical paycheck

A paper paycheck is the traditional method of paying employees. For each pay period, you process payroll, print checks and distribute them to employees. Some companies distribute checks in person while others mail paychecks.

Pros of paper checks

Here are the pros of using paper checks for employee payments:

• Familiarity:A paper check is simple and familiar.
• Flexibility:Your employees don’t need bank accounts to access the money. For a fee, they can use a check-cashing service.
• No shared banking information: Some employees prefer paper checks to keep bank account information private. Direct deposit requires employees to provide their bank account information, which can make some people nervous.

Cons of paper checks

Potential cons of using paper checks include:

• Slower: A check has to be taken to the bank and processed before funds are available. Some banks take a few days to process checks, which can leave your employees in limbo waiting for their money.
• Time-consuming: Processing paper checks takes your payroll department a lot of time, especially if you have a large staff. After processing payroll, they have to print and distribute each paycheck individually.
• Increased cost: Creating physical checks adds to your payroll costs. You need the checks, a printer and ink to keep things rolling. You’ll also need envelopes for the paychecks, even if you pass them out at work, to keep the details private.
• Delays: If employees are on vacation or sick on payday, they have to wait until they get back to receive their pay. If you mail paychecks, they could get lost in the mail or delayed, which may put employees in a financial bind.

2. Direct deposit

With 93% of American employees receiving their pay via direct deposit, it’s safe to say this is a popular payment method. Your employees provide their bank account information. When you process payroll, their earnings go directly to their bank accounts on payday using an electronic funds transfer.

Pros of direct deposit

The pros of direct deposit include:

• Instant access: As soon as the EFT lands in the employee’s account, they have access to the money.
• No lost checks: Since there’s nothing physical for the employee to receive, there’s no risk of them losing the payment like they could with a paper check.
• Faster processing: Initially setting up direct deposit can take some time since you have to enter the banking information. Once you’re set up, it’s quick to process.
• Lower cost: Direct deposit can be one of the cheaper methods of paying employees since you don’t need any supplies. You’ll often pay some fees, including monthly fees, setup fees and transaction fees. Some payroll software companies include direct deposit with no additional fees.
• Paper trail: Direct deposit leaves a convenient audit trail, and it’s easy to track mistakes when they happen.

Cons of direct deposit

Drawbacks of direct deposit include:

• Processing time: The timing for processing payroll is important if you choose direct deposit for employee payments. If you don’t process it early enough, the EFT will be delayed and your employees won’t get paid on the correct date.
• Shared banking information: Some employees may not want to share their bank account information with you when they complete their new employee forms.
• Bank account required: Your employees must have a bank account to receive their pay via direct deposit.

3. Cash

Paying your employees in cash isn’t common, but it is an option. It’s usually only feasible if you have a very small company. You still need to take out tax payments and other normal deductions if you have employees vs. independent contractors.

Pros of cash

Here are some pros of paying employees with cash:

• No fees: Handing over cash eliminates processing fees and supplies that other payment methods require.
• Instant access: You can guarantee your employees get their money on payday when you give them cash. They can start spending their wages immediately.

Cons of cash

Consider these cons of paying with cash:

• Red flag: Paying your employees in cash can get you unwanted attention from the IRS. The agency may look at your payroll more closely since it’s easier to take out incorrect tax amounts when you pay in cash.
• Lack of paper trail: Other payment methods provide an automatic paper trail that makes it easy to track. Cash lacks that built-in audit trail.
• Loss potential: Having that much cash on hand puts you at risk for theft. Employees might also lose the cash before they spend it or deposit it in the bank.
• Inconvenient deposits: If an employee wants their money in the bank, they have to make a trip to their financial institution to deposit the cash, which adds an extra step.
• Time-consuming: Recording cash payments can take more time. You also have to physically hand over the cash, which is also time-consuming.

4. Payroll card

Payroll cards are similar to debit cards. On payday, you load each employee’s card with the earnings for that pay period. Employees can use the card like a regular debit card for making payments or withdrawing cash at an ATM.

Pros of payroll cards

Consider these pros of using payroll cards:

• No bank account needed: Spending money on a payroll card doesn’t require the employee to have a bank account.
• Instant access: Employees can spend the money as soon as it’s loaded onto their cards.

Cons of payroll cards

Here are some cons of using payroll cards:

• Fees: Costs can vary, but payroll cards usually require setup and regular fees. Employees might also have fees if they withdraw cash from an ATM, which cuts into their earnings.
• Loss potential: If an employee’s payroll card gets lost or stolen, they lose access to the money.
• Regulations: Some states heavily regulate this payment method, which can make it more challenging to use.

How to choose a method for employee payments

Deciding how to pay an employee isn’t always easy. Take these things into consideration to help with the decision:

• Check state requirements: States regulate how many options for employee payments you can offer. They may also regulate whether you can require a certain type of payment.
• Consider employee preferences: You can’t please everyone unless you offer all payment methods, but getting feedback from employees can help you decide.
• Compare fees: Research the payment options available to you and the associated fees, which can vary.
• Consider time commitment: Time-consuming payment methods like paper checks slow down your payroll department. Some methods also make paycheck records more difficult. Electronic options sometimes cost a little more, but they can save time, making the fees worth it.