A major task for the payroll staff is to issue paychecks to employees. This task breaks down as follows: First, the checks must be printed (though this seems easy, it is all too common for the check run to fail, resulting in the manual cancellation of the first batch of checks, followed by a new print run). Next, the checks must be signed by an authorized check signer, who may have questions about payment amounts, which may require additional investigation. Third, the checks must be stuffed into envelopes and then sorted by supervisors (since they generally hand out paychecks to their employees). Fourth, the checks are distributed, usually with the exception of a few checks being held for later pick-up for those employees who are not currently on-site. If checks are stolen or lost, the payroll staff must cancel them and manually issue replacements. Finally, the person in charge of the bank reconciliation must track those checks that have not been cashed and follow up with employees to remind them to cash their checks (there are usually a few employees who prefer to cash checks only when they need the money, surprising though this may seem). In short, there are a number of steps involved in issuing payroll checks to employees. How can we eliminate some of them?

We can eliminate the printing and distribution of paychecks by using direct deposit. This best practice involves issuing payments directly to employee bank accounts. In addition to eliminating the steps involved with issuing paychecks, it carries the additional advantage of putting money in employee bank accounts immediately, so that those employees who are off-site on payday do not have to worry about how they will receive their money—it will appear in their checking accounts automatically, with no effort on their part. Also, this practice eliminates the effort of asking employees to cash their checks, since it is done automatically.

It can be difficult to get employees to switch over to direct deposit. Though the benefits to them may seem obvious, some will prefer to cash their own checks; then there are those who do not have bank accounts. To solve this problem, an organization can either force all employees to accept direct deposit, or implement the practice only with new hires while allowing existing employees to continue to receive paychecks. If employees are forced to accept direct deposit, the company can either arrange with a local bank to give them bank accounts or issue the funds to a debit card (see the preceding best practice).

Another problem for the company is the cost of this service. A typical charge by the bank is $1.00 for each transfer made, which can add up to a considerable amount if there are many employees and/or many pay periods per year. This problem can be reduced by shrinking the number of pay periods per year.