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Pay WHAT? 3 Alternatives to Direct Deposit

3 alternatives to direct deposit
Credit: Creative Lab/Shutterstock

As a small business owner, paying your employees is an obvious priority, and how you do so depends largely on your workers' preferences. Most employers use direct deposit to reimburse their staff, due to its safety and convenience. In fact, according to the National Automated Clearing House Association, 82 percent of U.S. workers are paid via direct deposit.

However, there are some downsides to this method, like setup and transaction fees and lack of accessibility to workers who don't have bank accounts, that are making some employers consider other payment options. Depending on the type of workers you hire (i.e., contractors, freelancers, etc.), it might make more sense to use another payment method.

Here are three popular alternatives on the rise.

Editor's note: Looking for help with payroll services? Fill out the questionnaire below to have our vendor partners contact you with information for free.

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Thanks to new tech developments, you can now send money digitally, using platforms like PayPal or Venmo. These allow you and your employees to hook up your accounts, so you can transfer money to them per project/pay period.

You decide whether you want to connect your bank account or a particular card, and your workers have the same choice. In other words, each of you is in control of where you're withdrawing/receiving money and whom you are sending it to/accepting it from as reimbursements.

  • Convenient for contractors/freelancers
  • Instant payments
  • Mobile friendly
  • Records transactions
  • Risk of hackers
  • Fees for business accounts/transactions
  • Account issues like frozen account, lost password, etc.

While paper checks have been used for quite some time now, mobile check deposits are making them more convenient. Employees no longer have to drive to the bank to deposit their paper checks; they can take a photo of the check on their mobile devices and deposit it using their bank's application.

However, for nonbankers, this option is more complicated, as banks are not obligated to cash checks for someone who does not have an account.

  • Convenient for in-person payments
  • Best for small businesses with few employees
  • Costly/difficult check-cashing for unbanked workers
  • Pricy printing and distributing process
  • Long processing time
  • Risk of check fraud

Payroll cards are prepaid cards that employers can load with a worker's salary/wages on payday. The method is similar to direct deposit but exists for workers without bank accounts.

Because these debit cards are manufactured by major payment processors like VISA, they can typically be used anywhere that accepts electronic payment. They can also be reloaded or used at an ATM for cash back.

However, depending on the employee's location, there are state laws and regulations you should familiarize yourself with before choosing this method.

  • Convenient for employees without bank accounts
  • Instantly usable
  • Cost efficient for employer
  • Less risk of fraud
  • Possible fees for employees when checking balance/withdrawing money

As an employer, you are no longer limited to paying workers via direct deposit. However, choosing the right payment option shouldn't just depend on your business. How your employees will be paid involves their input and preferences, so work out a process that benefits both parties.

Sammi Caramela

Sammi Caramela has always loved words. When she isn't working as a Business News Daily and Business.com staff writer, she's writing (and furiously editing) her first novel, reading a YA book with a third cup of coffee, or attending local pop-punk concerts. The only time Sammi doesn't play it safe is when she's writing. Reach her by email, or check out her blog at sammisays.org.