Key Components to Setting Up Payroll: Part 2 – Employee Payment Methods

6 mins read

This article is written to provide you with the three different methods for paying your employees.

Now that you have selected the pay frequency which your employees are going to be paid, its time to know which payment method to use before paying out wages. It would be strange and unprofessional to pay one employee by cheque and another by cash. For payroll auditing purposes and streamlining processes, we recommend selecting one payment method as a means to pay your employees. In this article we will be discussing the different payment methods such as direct deposit, paycheques, and cash… we may get into cryptocurrency in the future, but that is a whole different topic, for another article.

Your payment method will generally be determined by the size of your company, the costs associated, and what is considered easiest to complete. Leading the pack of payment methods is:

Direct Deposit

The most common method to pay employees, Direct Deposit is used by 82% of companies to pay their employees. One of the major benefits of direct deposit is convenience, there is no need to physically hand someone their paycheque and employees will receive their wages on time (regardless of being away from work).

With direct deposit, companies need to be cognizant of when payroll is processed as it generally takes 2 – 3 business days to have it deposited into an employee’s bank account. Remember that not all banking institutes follow the same procedures, so some employees could receive it later than expected if not processed on time.

Another note to consider is the fees that come with direct deposit. Generally, banks will have monthly fees or set-up fees of $50+ per pay run or transaction fees of $1.50+ per transaction. If you do have a payroll software provider, the direct deposit could be incorporated at no added cost.


Next on the list in payment methods is paycheques. This is one of two traditional ways to pay employees. Similar to direct deposit it can leave a clear bookkeeping record trail. However something to keep in mind is that handwriting each cheque can be time consuming, and we think you may like to spend that time focusing on building your business or perhaps play a round of golf– especially if you have a BIG number of employees. Paycheques are commonly done by businesses with less than 20 employees and the process is not as costly as direct deposit.

There are various potential concerns with paycheques, one of them is that human error can be at play here, with the potential of misspelling names or the writing is illegible. Another concern to consider is how easy a paycheque can be lost of stolen. In instances like this, the company may need to go through a lengthy process to cancel the paycheque number so it cannot be deposited and rewrite another cheque; or try to get the money back if it has already been deposited.

There are instances where you may need a special printer where you need to ensure to have a full stock of special ink and paper, and if you run out of these special supplies, you will need to resort back to handwriting them out.


Finally, one of the oldest and traditional ways to pay employees is by cash. Although they say cash is king, we would not recommend this method of payment as it is often scrutinized and more difficult to keep track of for payroll records. Cash payments to employees pose several concerns such as an employee accusing you for not being paid, even if you have and could potentially raise some flags with the CRA, as they cannot completely know with certainty that the correct taxes were deducted and paid to the employee.

With cash payments, there is not an automatic audit trail to follow. Although paying employees in cash does not require immediate fees like you would with direct deposit or paycheques, it could cost you more money and put you at risk if an audit were ever completed on your business or an employee accuses you for not paying them.

Before you select the payroll method you would like to take, it is always important to check the provincial laws in which you are conducting business and weigh out the pros and cons. Best practice and our recommendation is to pay your employees either via direct deposit or paycheque in order to protect your company from false accusations while maintaining a clear(er) money trail for auditing and payroll purposes.

Stay tuned for Part 3 of this series for Payroll Processing Workflows, which we will discuss having the proper controls in place for payroll approvals.

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