How to Ditch Paychecks and Pay Employees Electronically

| October 26, 2015 | Financial Management

Man using laptopPaper-based paychecks have been a staple of the workplace for many decades. Employers issue checks on a given date and employees rush to the bank to make sure they land in their accounts in time to cover all their bills. The process is laborious and time consuming, wasting resources and causing undue stress. Things only get more complicated when businesses start working with remote employees and contractors, which means paychecks must be mailed, bringing postage costs to the printing cost already attached to processing paper-based checks.

Some businesses still resist converting to an electronic paycheck process, assuming there will be too many steps involved. But aside from the initial setup, paying employees electronically is far less complicated than sending data over to have paper checks cut. Employers simply have every employee complete a form with their account information, attach a voided check, and submit that information to the bank. Once this process has been completed for each employee, the bank takes it from there.

Salaried Employees

For salaried employees, employers benefit the most from electronic deposits. Since payments are made every couple of weeks or so, anything an employer can do to automate the process can save substantial time and money every year. A business can even set up payroll systems to export the information they need for every paycheck, saving additional time. Banks can also help businesses set up direct deposit for one-time payments like bonuses and commissions.

There are a couple of options a business has when setting up a new employee. One is to ask the employee to provide a voided check or deposit slip to verify that the numbers on the form are correct. When a new employee completes the form for ACH salary payments, businesses should also always send one small test transaction to ensure the information is entered into the system correctly. This can avoid an employee not being paid due to erroneous information.

Freelancers and Contract Workers

Electronic payments are also easier for a business’s freelance and contract workers. However, the method a business chooses may rely on how many paychecks a worker will receive from an employer. You can use a service like PayPal or a one-time payment option from your own bank in these instances, with the option to always switch to ACH if It becomes clear the worker will be helping with projects for your business over a longer period of time.

If you choose the ACH option for all of your contractors, simply email the form when you send over the W-9. You can process all of the paperwork at once to save time and make sure nothing is forgotten. As with your salaried workers, you may also want to have your contractors provide a voided check and send a small deposit to test to make sure the account is set up correctly.

Paper-based paychecks require extra time and expense for businesses, even though they seem to be easier initially. To set up electronic payments, a business needs only to contact its bank, apply for the ACH program, and ask for the ACH authorization forms necessary for each worker to get started on the program.

Ajeet Khurana
Ajeet Khurana
Ajeet Khurana wears many hats: author, angel investor, mentor, TEDx speaker, steering committee of the NASSCOM Start-Up Warehouse, Director of Founder Institute, Venture Partner with the seed initiative of a top Venture Capital firm, and former CEO of IIT Bombay’s business incubator, among others. Before all this, he was entrepreneurial twice in the field of education and web publishing. As a lecturer at the University of Texas at Austin, he taught e-commerce back in 1993, when the term "e-commerce" had not yet been coined. An undergrad in computer engineering from the University of Mumbai, and an MBA from the University of Texas, Ajeet is presently an active name in the startup ecosystem. From starting two ventures as a solopreneur, to helping a large number of startups with their go-to-market, he has never shied from getting his hands dirty. At the same time he has helped dozens of startups raise investment. He truly believes that small business owners are driving change in the world, and need to be facilitated as much as possible. Innumerable small businesses have gained from his attitude, vast professional networks, financial acumen and digital mindset.

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