Paperless Payroll: Should You Make the Switch?

What is paperless payroll?

“Paperless payroll is a term that describes how an entire payroll can be processed without generating any paper,” said Eric Wade, product manager at Indeed.

There are many options for paperless payroll systems, all of which offer different features and capabilities. However, the main components of a payroll system remain the same. 

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“There are multiple components of a paperless payroll, including recording employees’ time electronically, employees being paid via electronic payment methods (versus a negotiable paper check), delivering pay stubs to employees electronically, payroll reports being generated electronically and delivering W-2s to employees electronically,” Wade said. 

With a paperless payroll system, managers and employees can still easily access and view essential information, including the following: 

• Virtual time sheets
• Pay stubs
• W-2 forms
• Vacation time
• Benefits

What are the different types of paperless payroll?

These are some standard services payroll providers offer: 

• Electronic payroll records: This option helps you avoid paper clutter and stay organized. The Fair Labor Standards Act (FLSA) requires businesses to keep all payroll and paycheck records for at least three years, and they need to be accurate and printable.
• Employee self-service (ESS) models: ESS models allow you to share pertinent information online about your business, such as employee handbooks, benefit options and company history. An ESS also enables employees to clock in and out of work electronically. It then automatically computes time and attendance data.
• Electronic funds transfer (EFT): An electronic funds transfer allows you to transfer wages without exchanging a physical check. To do this, your employees will need to provide their bank account and routing numbers. Then, for each pay period, your bank account will transfer wages to the employees’ accounts. Keep in mind that EFT laws vary from state to state.

Employees can opt in to direct deposit during their onboarding process to transfer wages to their bank accounts, or they can opt to receive a pay card to transfer their funds directly onto a debit-like card.

What are the benefits of a paperless payroll service?

There are many benefits to running a paperless payroll, including increased security and peace of mind. For instance, if there were a natural disaster, your paper records would likely be damaged or destroyed, but your online records would be safe. You would still be able to access them from any place at any time.

Here’s a look at some more advantages of going paperless: 

Paperless payroll is good for the environment.

“Switching to paperless payroll is environmentally friendly, requiring less paper and printing resources,” Wade said.

As more companies seek ways to reduce their carbon footprint, implementing paperless payroll is an effective and easy way to conserve natural resources.

Paperless payroll saves money.

Paperless payroll comes with tremendous cost savings. According to Wade, research from the Electronic Payments Association and the American Payroll Association (APA) found that you can save between $2.87 and $3.15 per pay run by paying employees electronically. You can save another $1.20 by providing pay stubs online, the research found.

Replacing a lost check can even save you money. “The APA indicates that if a check is lost and needs to be replaced, there can be an additional cost savings of $8 to $10 per replacement check,” Wade said.

Paperless payroll streamlines tax processes.

Paperless payroll systems protect your business (and save you more money) by streamlining tax reporting. 

Paperless systems ensure you pay and file your company’s taxes on time, according to Tomer London, co-founder of payroll system provider Gusto. Paperless payroll programs file all local, state and federal taxes automatically, so business owners no longer have to remember to send in forms or make payments.

“Running payroll manually is a time-consuming, complicated and error-prone process,” London said. “As a result, one-third of small business owners get fined every year for filing or paying their payroll taxes incorrectly.”

Paperless payroll has additional benefits.

Wade named these further benefits of going paperless:

• Efficiency: You’ll save time you would have otherwise spent preparing checks, delivering checks to employees, resolving lost and undelivered checks, fixing check-cashing problems and handling fraud issues. With paperless payroll platforms, employees can log in and resolve questions and issues themselves.
• Reliability: You’ll pay employees on time, regardless of holidays or unexpected events, such as bad weather or natural disasters. Your employees will know they’ll be paid on time and can budget accordingly.
• Accessibility: By going the paperless route, you’ll gain convenient access to your employees’ payroll data either online or via mobile device, should questions arise after hours. Employees also have access to their payroll data, including direct deposit information, pay stubs and W-2s.
• Organization: Storing three years’ worth of paper payroll records per employee can lead to a lot of wasted space and hours spent establishing and maintaining an organized filing system. Most paperless payroll services provide digital storage of all records and continued access to employee records whenever you or your personnel need them.

The best payroll software for paperless payroll

Among our picks for the best payroll services, here are some options with excellent paperless payroll features.

• Gusto. This system offers a seamless employee onboarding process and takes the hassle out of tracking and inputting employee information. Employees can also enter their own information to further streamline the process. Additionally, Gusto gives you easy access to digital paystubs and year-end tax forms. To learn more about this user-friendly payroll system, check out our Gusto review.
• OnPay. This software offers unlimited payroll runs for both W-2 employees and contractors. It also makes managing and customizing employee pay simple by allowing you to easily view and add items such as tips and bonuses. Read more about this payroll system, its integrations and its other features in our OnPay review.
• Paychex. This robust platform covers payroll and helps you run other parts of your business. It takes care of all your federal, state and local payroll taxes and files them for you. It also offers paperless onboarding, background checks for new employees (for enterprise users) and state new-hire reporting. Learn more about this full-service payroll system’s features in our Paychex review.
• TriNet. With TriNet, you can complete a payroll run in just three clicks. This platform manages employee benefits by issuing entitlement letters and automatically implementing monthly deductions. Employees can also use TriNet to clock in and out and view estimates for upcoming paychecks based on their upcoming unpaid time off. Check out our TriNet payroll review to find out more about this platform’s usability.

How to get started with paperless payroll

Before going completely paperless, first ensure your state allows it. Wade advised that certain states require employers to offer paper checks as a payment option, while other states mandate employees have the ability to opt out of online paystub delivery.

Additionally, the Internal Revenue Service requires that all employees first consent to receive their W-2 forms online. Employees who don’t consent must receive a paper copy.

Here are the steps you should take to go paperless:

1. Choose a paperless payroll system

When choosing a paperless payroll service, consider all the payroll functions that can go paperless, such as entering time sheets or timecards, generating electronic paychecks and stubs, and using direct deposit to transfer funds. Consider how you use each function and decide whether it’s viable to replace it with a paperless process.

Next, review the different types of payroll providers and what they offer; use that information to decide which provider is right for you.

2. Ensure your workers use employee self-service (ESS). 

An ESS portal or software package can be a hub for exchanging all payment and paid time off information between employees and management. Should something go wrong, ESS will enable clear communication about these matters between you and your employees. There won’t be a need for managers to sign paper requests. ESS will also provide W-2s to your employees quickly.

3. Introduce direct deposit or pay cards for employees.

More than 95 percent of employees in the United States now receive their payments via direct deposit, according to the 2023 Getting Paid in America survey by the American Payroll Association. Aside from the need to stay up to date with current technology, direct deposit payments are faster than issuing paper checks. 

Paycards and direct deposit go hand in hand with ESS. Once your employees are trained in their new ESS software, they’ll be better equipped to take care of their direct deposit and paycard payments as they arrive in their accounts. Consequently, your employees will feel a greater sense of gratification because of the increased speed with which they are now being paid. Employees define the company: If they’re happy, you’ll be happy. 

4. Set up automatic email reports.

Automatic emails will keep your payroll department, HR staff and other employees in the loop throughout the payment process. This will save paper that would have been used previously to distribute reports long after payments were issued. Using automatic email reports will ensure information is up to date and payments can be monitored in real time. Executives and managers will also have access to the reports, which will bolster companywide communication.

5. Import employees’ hours.

Importing employees’ hours not only saves time in the long run but also reduces the chances of errors. The easiest way to set up an hour-logging system is to use digital timecards that your employees can use to punch in and out of work, instead of using unnecessary amounts of paper. 

Reducing time and errors will save your company money — money that can be better used to make companywide improvements. Consequently, making your payroll system more efficient will increase your company’s return on investment.

To learn more about what to look for in a payroll system, check out our payroll system buyer’s guide. If you’re ready to get started, see which payroll systems we recommend for your unique business.

It pays to go paperless

Incorporating paperless payroll into your business adds convenience for both you and your employees. These systems give employees easy access to their pay records, promoting a sense of transparency and control over their financial information. Plus, the time and money you save by eliminating manual payroll processes increases your efficiency. It frees up space for improving other parts of your business — and you just can’t put a dollar sign on that.

Shayna Waltower and Kiely Kuligowski contributed to this article. Some source interviews were conducted for a previous version of this article.