Should Your Payroll Go Paperless? Pros and Cons of Paperless Payroll

paperless payroll

There's a lot to consider when potentially switching to a paperless payroll system. Here's the skinny on cost, accuracy, storage and more.

The first known payroll records were carved out on tablets – clay, not electronic – as far back as 7000 AD. And clerks and treasurers from 5th century Greece kept chiseled accounts of payment entries and financial records, much like HRIS and payroll record-keeping systems do today.

Fast-forward to the 1950s, when computerization entered the workplace to handle clerical tasks, including payroll. Inspired by computers’ capabilities, a group of California bankers met in the late 1960s to determine how they could reduce the high and growing volume of paper checks that went through the national check-clearing system. The result of that meeting was the paperless check.

But the big revolution in payroll processing came in the 1990s, when advanced technology allowed businesses to:

  • Update payroll in real- or near-real-time
  • Merge and run HR and payroll from a common database
  • Manage workflow and accounting
  • Incorporate talent, time, and absence management into one system

With more technological advances, payroll systems can:

  • Move from an in-house system to a Software as a Service (SaaS) platform
  • Produce customized reports
  • File payroll taxes electronically
  • Input data remotely
  • Offer 24/7 employee self-service access to payroll data

Today’s automated payroll systems can complete all the above transactions without generating a sheet of paper.

States’ paystub requirements

As technologically advanced as paperless payrolls are, eliminating paper paystubs isn’t always an option. Forty-one states have laws requiring that employees have access to their paystubs. A few states even specify what information paystubs should include.

Employers in some states must make workers’ paystubs accessible in either paper form or electronically.

Some states mandate that employers give workers access to their paystubs and a means of printing them. In other states, employers must allow workers to opt-out of receiving their paystubs electronically and receive paper paystubs instead, if they choose. Hawaii requires workers to opt-in to receive electronic paystubs or choose to do so voluntarily.

Federal law and nine states have no paystub restrictions. However, before adopting a paperless payroll system, make sure you comply with your state’s laws. And if your company does business in multiple states, you must comply with each one’s requirements.

Paperless payroll’s pros and cons

In the age of digitization, the advantages of a paperless payroll system outweigh the drawbacks in convenience, speed, efficiency, and cost for both employers and workers. But it pays to compare the pros and cons of choosing the appropriate system for your organization.

Advantages:

Convenience.

Paperless paychecks, time cards, timesheets and other transactions offer a more streamlined, less time-consuming system for processing payroll. Issuing paperless paychecks is a faster, safer way of paying employees. For example, through direct deposit plans, employees typically have same-day access to their earnings, can avoid trips to the bank to deposit or cash their paychecks, and don’t have to worry about lost or stolen checks. They can also access payroll-related information, such as work hours and time off balances, through 24/7 employee self-service platforms.

Cost.

is an expensive process. According to the National Federation of Independent Business (NFIB), a nonprofit small-business association, employers pay $3 per printed check, per employee. Also, lost productivity, stemming from employees leaving work to deposit or cash their paychecks cost employers $2 per worker. When multiplied by a dozen or more employees, these figures add up to significant savings.

Accuracy.

Automated processes reportedly make far fewer errors than those performed by humans. All data errors should be corrected when discovered for recordkeeping compliance purposes. But documents with errors in paper-generating systems must be corrected and re-printed.

Green.

Paperless systems benefit the environment; there’s no paper to dispose of, recycle or end up in waste piles. According to the U.S. Environmental Protection Agency (EPA), Americans use 69 million tons of paper annually, which makes up 40 percent of the country’s solid waste.

Storage.

No physical space is required for electronic documents and files. And cloud-based platforms eliminate the need to store electronic files on hard drives. A critical advantage for any organization is that electronic files can survive a natural or man-made disaster, or other emergencies when backed up in an off-site location or a cloud platform.

Competitive.

Digitization is about organizations operating more efficiently, cost-effectively, and competitively now and into the future. Employment experts are predicting a technology disruption, in which innovation replaces current ways of operating and artificial intelligence and robotics will drive the demand for new skills and techniques for the future of work. Organizations must prepare for these changes, which could finally eliminate much of the paper dependency computers were predicted to end in past decades.

Drawbacks:

Paystub laws.

Even when switching to electronic systems, organizations must maintain a paystub printing option under certain state laws. Also, companies operating in multiple states must comply with varying laws and provide hard copies of records and transactions at regulators’ requests.

Direct deposit delays.

Electronic pay transfers might be delayed during weekends and holidays in nonbank financial institutions, such as credit unions.

Paycard fees.

Employees must have checking or savings accounts to enroll in direct deposit plans. As a paperless alternative, some organizations offer employees paycard systems, which transfer their pay onto debit cards they can use like bank accounts. However, the fees charged to employees can be steep and therefore significantly reduce their earnings.

Getting started

If you’re sold on a paperless payroll system, start here:

  • Consider all the payroll functions that can go paperless, such as generating electronic paychecks and stubs, time sheets, time cards and other transactions.
  • Consult your IT staff or service provider to decide whether your current payroll system and HR software need upgrading, overhauling, or integrattion into a new system with paperless features.
  • Configure the total cost-savings in shifting to a paperless system.
  • Decide whether to keep your paperless payroll system in-house or to partially/completely outsource it.
  • Meet with payroll service vendors to compare functions and costs, and ask to see a demo of their platforms.
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