Check vs. Direct Deposit
Employees who receive payment by check must go to the bank and either deposit the check into their account or cash it. Direct deposit is deposited electronically into their bank account. The employer selects the payment method but often does so based on the organization's structure and needs. Each payment method has strengths and weaknesses.
Other People Are Reading
-
Considerations
-
A live check is the employee's actual paycheck; it includes a perforated attachment called a pay stub. With direct deposit, the employee receives only a pay stub, which cannot be cashed. The pay stub for checks and direct deposit are similar; both state the employee's current and year-to-date earnings and deductions. Direct deposit is optional. Consequently, employers who use it also have a check system.
Set-up
-
The employee does not have to complete any payroll forms to receive an actual check. If she elects direct deposit, she must complete a direct deposit form, attach a voided check and submit it to the payroll department. If the information is entered correctly into the system, direct deposit happens in one or two pay periods. Incorrect information can lead to delays in the direct deposit.
-
Processing
-
Generating checks through the payroll system is a relatively straightforward process. Some companies have blank checks that include the authorized signature. Processing direct deposit requires more steps than checks. A direct deposit file must be created and sent to the bank. The payroll person must check with the bank to ensure the file is properly received.
If the printer malfunctions or the ink is low, delays can occur when printing checks. This problem is eliminated with direct deposit. Employees are more tolerant of poorly printed direct deposit stubs than an illegible check. Furthermore, employees are more willing to wait on their direct deposit pay stub than for their paychecks.
It is more time-consuming to reconcile checks than direct deposit. The account statement for checks lists each individual check, which must be reconciled individually. The direct deposit statement includes the total sum, and a breakdown of each transaction.
Concerns
-
Some employers and employees using the check system for many years may be reluctant to switch to direct deposit. They have become reliant on it and trust it more. Those who use direct deposit generally find the check-writing process cumbersome and unsafe.
Safety
-
Checks are susceptible to fraud such as counterfeit, stolen checks and forged signatures. Direct deposit provides employers with a sense of security; no check cashing is involved. Problems with direct deposit hardly occur; when they do, it is usually due to a system error by either the bank or the employer. If both systems are working properly, the transaction goes smoothly.
Cost
-
Checks are more expensive than direct deposit. Furthermore, payroll service providers charge more to issue checks than to process direct deposits. Direct deposit eliminates the need to buy paper checks and printing supplies.
Usage
-
According to Electronicpayments.org, three out of four individuals with the direct deposit option use it. More and more companies are turning to direct deposit because it saves employees from having to make trips to the bank, and it costs less than checks.
-
References
- Photo Credit check in macro image by Alexey Klementiev from Fotolia.com
More Like This
Comments
-
We need direct deposit asap!!
