Wire Transfer Vs. Direct Deposit: Which Works Better For Your Company’s Payroll?
One essential task when operating a business, whether big or small, is accomplishing a payroll. It is an integral part of every organization which protects the credibility of the company while ensuring compliance with various legislation. Payroll plays a vital role in all aspects of your business, even if it’s considered a basic processing function.
From your company’s reputation to the morale of your employees, a reliable and accurate payroll is deemed necessary. A critical component of payroll is how employees will receive their wages. In other words, not only would you have to think about how much you should pay but also how you would pay your employees.
There are several options available, but there are two popular payment methods you can utilize: a wire transfer and a direct deposit. While both allow you to send money electronically, you need to familiarize both options and see which works better for your company’s payroll.
The Importance of Payroll
The first step to setting up the right payroll for your employees is to acknowledge its importance. Else, the tendency to take advantage of the process is high. It is every employer’s responsibility to establish a credible payroll system to protect the employees and the overall business operations as well.
The payroll process begins after you hire your first employee. Your employees work on a certain pay period and are paid according to their work hours and pay rate. How long it takes to complete payroll depends on how you process it. For this reason, it is necessary to secure a system that would streamline your company’s payroll process.
Most companies’ payroll departments encounter numerous issues. They have to ensure that employees are paid on time, contractual obligations are met, tax and other withholding duties are sustained. To do so, it is vital to strengthen your payroll system.
How to Pay Your Employees?
As an employer, paying your employees is one of your top legal obligations. Most businesses are affected by both state and federal laws regarding pay. Thus, you should avoid missing payroll at all costs if you don’t want to face any legal trouble.
Apart from recording the time employees worked and calculating their deductions and earnings, employers need to determine the payment method. One method may work better than the other, depending on the type of business and manpower that you have.
There are various employee payment methods available, but you might want to take a look at these two options below.
A wire transfer is a quick way to send money electronically. There are two ways to execute a wire transfer. One is to transfer funds from one bank or financial institution to another with no physical money involved. Another option is to send the money to a cash office, which in turn, deposits the money directly to the recipient’s bank account.
To execute a wire transfer, you will need the name of your recipient’s bank, account number, and routing number. If you send the money to a different wire transfer location in place of a bank account, you need to obtain the recipient’s name and location of the transfer destination.
Direct deposit is another form of electronic money transfer that does not require paper checks. Payments are made directly into the bank account of the recipient. One of the most common types of direct deposits is paychecks electronically transmitted from employers to employees.
With direct deposit, you don’t need to hand an employee their wages physically. Once you receive their banking information, you can directly deposit their wages every pay period via EFT (Electronic Funds Transfer.)
Wire Transfer: Advantages and Limitations
For you to decide whether wire transfer is suitable for your company’s payroll or not, it might help to go over its advantages and limitations. It is essential to utilize a payment method that would primarily benefit your business and your employees as well.
There is no doubt that wire transfer is an excellent option, especially in terms of fast transactions and financial emergencies. In most cases, wire transfers go through within the same day it was sent so that the money would be available in the recipient’s account instantaneously.
However, wire transfers are usually used for large payments and are best used for one-time or infrequent payments. There is a fee required for using wire transfers, and it can be relatively expensive. The fee depends on the bank or wire service you will use. The receiver might also have to pay an additional fee to get the funds.
Wire transfers can be done whenever and wherever you are, allowing you to send and receive payments from anywhere in the world. It is generally safe to use, even in international wire transfers. The only drawback with this option is that it’s prone to attracting scammers since transfers can be made anonymously. In most cases, it can be too late to recover the funds.
Direct Deposit: Advantages and Limitations
Like wire transfer, direct deposits also have several benefits and limitations that may or may not suit your company’s needs. Weighing them might help you choose the right payment method for your employees’ payroll.
One of the advantages of direct deposit is convenience. With direct deposit, your company can save time from specific payroll-related tasks. It also ensures that your employees will be paid on time since you’ll have more control over your funds with electronic payment technology.
This option is flexible since it would allow you to make deposits automatically between a checking and a savings account. Also, it is the fastest way to receive a tax refund. Direct deposits can increase protection on your account information as an employer, as well as the employee’s personal information.
But since direct deposits need to be set up in advance, it may take one or two pay periods before money can be directly deposited into the account. Thus, it is essential not to miss the time frame for processing to sustain its quick process. Nonetheless, it cannot be used to transfer money during emergencies.
Should You Execute a Wire Transfer Or Direct Deposit?
Choosing which is the better option for your company’s payroll is all up to your judgment as an employer. However, it also depends on what you consider valuable in your business. Keep in mind that the employees are a company’s most valuable assets. Without them, it might be challenging to deliver your business operations and services.
It is necessary to look into these two options according to how convenient it is for your business and how your employees will benefit from it. The payment method you utilize must come down from your evaluation of what is best for your employees and business.
What Do Employees Prefer?
Since both options are electronic, employees never have to worry about security or to lose their checks on payday. Employees would typically prefer a payment method that will not delay their wages. Between the two options, direct deposit is more likely to cause a delay if the time frame for processing is missed.
Aside from that, employees also prefer something reliable and secure. Since money is moving directly from your business’ bank account to your employees’ bank account through direct deposit, it can better secure confidential information. Thus, a direct deposit is more suitable than wire transfer in terms of security.
Regardless of the payment method you want to utilize, the key is to make sure the benefits will outweigh the disadvantages for your employees and business. Because no matter what process you choose, it will come with some setbacks.
Another way to ensure that your employees get the best payment method is to survey their preferences. This way, you would be able to hear their assessment while giving room for improvements in your payroll process. Whether there is a need to change the payment method and expedite the process or not, engaging employees on this aspect might be a great help.
Other Things to Consider For Your Company’s Payroll
Determining which payment method to use is just one part of the complex process of completing a payroll. There are other essential things you still need to consider.
One is to secure the right payroll system for your company. A payroll system organizes the process of paying employees and applying employment taxes. It is implemented to keep track of work hours, computing wages, withholding taxes, and other necessary deductions. Dedicated software is often used for payroll, which requires minimum input from employers.
With payroll software in place, the entire payroll process of your company will become automated. It would also provide online portals for your employees to view important payment information, such as tax deductions and breakdowns of benefits. Above all, it would allow you to focus on running your business instead of spending so much time on payroll tasks. However, to find the right payroll system, you need to evaluate first the needs of your business.
Payroll is a vital component of every business. Employers should protect their employees when it comes to wages, taxes, and other benefits. They must make sure that their employees are well compensated and have convenient access to these wages. Thus, choosing a payment method for your company’s payroll is not a menial task. It requires a thorough evaluation of what your employees and business needs.