First, checks must be printed, signed, stuffed into envelopes, and distributed to employees. If employees are not available, a manager has to retain their checks for later pick-up. 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 get them to cash their checks. You can eliminate all of these processing steps by switching to direct deposit.
There are also some unique advantages to direct deposit, such as automatically putting money in employee bank accounts at once, so that those employees who are off-site on payday do not have to worry about how they will receive their money. Also, there is no longer any need to have an elaborate set of controls over the storage and tracking of unused check stock. Further, some payroll systems offering direct deposit give employees access to their payroll remittances over the Internet, so they can access their remittances not only for the most recent pay period, but for many prior periods.
However, it can be difficult to get employees to switch over to direct deposit, so you may have to retain check control and distribution systems for those few employees not willing to switch.
The cost of direct deposit is not a problem. Though the bank typically charges a small fee for each direct deposit, this is less expensive than the cost of the check stock, envelopes, bank processing fee, and labor needed by a traditional paycheck system. Also, if employees have been going to the bank to cash their checks during company work hours, then eliminating this item alone is worth the cost of direct deposit.