Small business owners have an array of options for paying employees, but live payroll checks and direct deposit remain popular choices. Though each payment method has its own set of benefits and drawbacks, savvy business owners often prefer direct deposit to live checks for its flexibility, convenience and cost savings.


Business owners and employees alike can benefit from the convenience of direct deposit when compared to live checks. When using direct deposit, employers configure accounting software to send electronic deposits to pre-configured employee bank accounts. Depending on the accounting package used and the size of the company, the process for sending direct deposits can require as little as a few hours. By contrast, business owners who use live checks must load check stock, print checks and either mail or physically distribute them to employees. In addition, businesses that use live checks must periodically replenish paper check stock.


Many business owners who use live checks simply print a single check for distribution to the employee. The employee, after receiving the check, may cash it or deposit the earnings into one or more bank accounts. When using direct deposit, employees configure the deposit accounts in advance. On payday, funds automatically deposit into the employee’s selected accounts. Business owners typically allow employees to distribute funds over three to five bank accounts when using direct deposit.


Costs for direct deposit vary considerably depending on factors like the size of the business, the number of deposits and even the business’ contract with its bank. According to the National Federation of Independent Businesses, banks typically charge a one-time direct deposit setup fee plus a nominal charge each pay period. In addition, banks typically charge a fee for each direct deposit the business originates. In a large business, these fees can amount to hundreds or thousands of dollars each pay period. By contrast, employers who use live checks must pay for check stock, envelopes and printing supplies. Businesses that use live checks must also pay employees to prepare the checks, print them and distribute them to recipients. If the business mails checks to employees, the cost of postage can also add a significant expense each pay period.


Many employees prefer to receive direct deposit rather than a live check. Some banks charge fees to cash payroll checks, and lost checks can cause considerable frustration for both the employee and the employer. In addition, live checks bear the company’s bank routing and account numbers, creating a potential for bank fraud should a disgruntled employee or thief use this information to create counterfeit checks. Finally, both direct deposit and live checks require some measure of payroll administration, but direct deposit removes variables like check cashing delays that can leave company books unbalanced for days or even weeks.