January 4, 2024
The ways to pay employees — especially as money continues moving into the digital sphere — have proliferated. You have options. Choose the one that best fits your business. You may want to peruse the different methods to see which makes the most sense for your business in terms of costs and employer responsibilities.
Some employees may prefer the privacy of receiving paychecks because they don't enjoy sharing banking information. But checks can get lost or stolen. Handwriting a paycheck can be time-consuming for employers.
What about using a printer instead of handwriting them as a form of preparing your checks? Something could go wrong with the printer; for example, it could run out of ink and you'll have to resort back to issuing handwritten checks. Or you might need to go with a special MICR printer that prints checks that bank check machines read with ease and uses magnetic ink.
A whopping 93% of payments are made this way. A big benefit? Convenience. Employees still receive wages even when they're on vacation. An important consideration, though, is the time frame for processing. The most time-consuming part is setting up direct deposit.
This method comes with fees: setup fees, monthly fees and a small fee per pay period. Transaction fees might be $1.50 per transaction. If you have online payroll software, direct deposit may be incorporated at no added cost.
Prepaid cards are something that you give to employees each payday. Each card is loaded with the employee's wages. The card is used like a debit card. Wages can be withdrawn from an ATM or by visiting a bank cashier. Unbanked workers who need cash from ATMs will be subject to ATM fees. Bank accounts aren't needed to receive wages through payroll cards.
You won't be surprised to discover there are fees involved, including setup costs as well as fees that employees may incur; depending on your state, you may be required to pay these employee fees on their behalf.
If you pay employees with cash, you must be extra careful about keeping records. The IRS takes special notice to make sure you're taking out the correct tax amounts. There isn't an automatic audit trail when you pay in cash. But — there are no immediate fees like with the other methods — just a higher risk of an IRS audit.
These are increasing in popularity, using systems such as Venmo or Apple Pay. You deposit wages into employees' phone electronic accounts. Employees can use the funds to directly make purchases. Expect small fees when paying with a bank account. Employees, too, pay a fee when withdrawing money from their mobile wallet.
You'll be required to get a pay stub to employees no matter what payment method you choose. Why? Pay stubs show employees what you've paid them and what taxes were taken out. There are pay stub requirements by state.
The best payroll method for your company depends on your business's compliance requirements, your employees' preferences and the tools you use to run payroll. Review state laws and relevant federal laws. You can't make direct deposit mandatory in every state — so review laws to prevent mistakes and penalties. Whether you need to track hours worked and holiday pay for an hourly employee, or to log paid time off or employee benefits for a salaried employee, there's a payroll app that can help.
Industry Newsletters ©2024