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The Pitfalls of Physical Paychecks

Most people remember their first paycheck. The feeling of hard-earned money, right there in plain numbers and letters on the paper in your hands, is a memory many won’t easily forget. And yet, despite their long-running popularity as a material representation of your earning power, physical paychecks have reached a strange point in the modern workplace.

They are now more prone than ever to fraud, and with the adaptation to the digital age, many workplaces vastly prefer direct deposit. That’s not to say there aren’t holdouts; many organizations still primarily rely on paper paychecks for their employees, with a set distribution date, physical pay stubs, and the reliable regularity of a pay schedule all working in harmony.

But physical paychecks provide employers with many more challenges than one might expect. Recent analysis indicates that small businesses face twice as much fraud as individual consumers do, to the tune of $1.56 billion in costs related to fraudulent checks. On average, businesses lost more than $20,000 on each fraudulent payment, 87 percent of which were false paychecks.

So, despite the safe feeling of having a paper paycheck securely in your hands, the reality is that an organization’s reliance on physical paychecks is a very real security risk, especially when it comes to check fraud. What is an employer to do?

Why is Direct Deposit Good for Payroll?

There are two main options, the first of which is a longtime and rather obvious one: direct deposit. By setting up digital deposits from your payroll directly to your employees’ bank accounts, you eliminate the risk of a paper check being lost, stolen, or otherwise fraudulently passed—which protects both you and your employee from a significant loss. Many employees can’t afford to miss even one paycheck, to say nothing of the cost to the employer (having to recoup the employee’s wages in a timely manner, plus labor costs to produce another paycheck and deliver it). 

Other pros of direct deposit revolve around expediency. Employers can automate a certain degree of work when it comes to getting employees paid through direct deposit, potentially saving labor to create and issue physical checks. And, best of all for the employee, many payments made through the ACH (automated clearing house) network will process much faster—many banks process direct deposits a day in advance, meaning that the paper paycheck she would have received on a usual Friday will instead be in your employee’s bank account on Thursday. For every employee who has been able to identify with a need for having money in the account to cover automatic bill payments, the knowledge that your funds will be in your bank without you having to lift a finger is invaluable.

However, not all employees are in viable scenarios to receive their pay via direct deposit. Those without bank accounts, or those in precarious home situations in which a bank account is shared, may need a less-automated way of receiving their paychecks safely. Another option, if you want to avoid physical paychecks as well as direct deposit, is a paycard.

Why are Pay Cards Good for Payroll?

There are many benefits of using a pay card for payroll. Perhaps the most obvious benefit is that it offers an alternative to direct deposit for employees who do not have access to a bank account, without having to face fees incurred by check-cashing institutions. In addition, pay cards offer greater flexibility than direct deposit. With a pay card, employees can choose when and how to access their wages. They can also use the card to make purchases or pay bills. Another benefit of pay cards is that they can help employers save money on payroll processing fees. Overall, pay cards offer a convenient and cost-effective solution for both employers and employees. 

Old-school physical paychecks may still have a place in many employees’ hearts, but they are not perfect for every organization and are by far the most susceptible payroll distribution system to fraud. If you need help figuring out how direct deposit or pay cards may help you avoid some of the potential costs of check fraud, we’re here to help! Just reach out to us and we’ll talk you through it.

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