Paying employees electronically is a good option. You use less paper and employees are less likely to lose their checks. Because the payments go directly into employee bank accounts, your workers are guaranteed to get their money.

As you look at ways to send electronic payments, you might come across two methods: ACH and wire transfers. What’s the difference between these two electronic payment types? Which should you use to pay employees?

The difference between ACH and wire transfers

ACH and wire transfers are both ways to send money electronically. Funds are typically sent from the sender’s bank account to the receiver’s bank account. Beyond these similarities, ACH vs. wire transfers are quite different. There are situations when using one is better than the other, especially when it comes to payroll.

Below is more information about the difference between wire and ACH transfers.

Wire transfers

Wire transfers are a fast way to send money electronically. Typically, wire transfers go through within one business day or even on the same day it was sent.

Wire transfers are normally used for large payments. And, this type of transfer is best for one-time or infrequent payments.

There is a fee to send wire transfers. The fee depends on the bank or wire service you use, but it will typically cost you between $10-$30 dollars. The receiver might have to pay a small fee to get the funds.

To send a wire transfer, you will likely need the name of the recipient’s bank, their account number, and routing number. You can also send the money to another wire transfer location instead of a bank account. In this case, you will need the recipient’s name and the name and location of the final transfer destination.

The funds you want to send must be available at the time you initiate the payment. Otherwise, the transfer won’t work. When you send the payment, the money is immediately removed from your account. Wire transfers cannot be reversed, so make sure the information and money amount you entered are correct. Once the receiver gets the payment, they can use the money immediately.

You might be able to set up your wire transfer online. But, depending on your service and the amount you want to send, you might need to set up the payment over the phone or in person.

ACH transfers

ACH transfers are slower than wire transfers. ACH payments take several days to complete, although you might be able to pay more to make the transaction faster.

ACH transfers are used for smaller, frequent payments.

These transfers are a low-cost way to send money. Depending on the number of transfers, the transfer speed, and your provider, the transaction might only cost a few dollars. Sometimes, you can even make ACH payments for free. ACH transfers are free for the recipient.

To send an ACH payment, you need the bank account number and routing/ABA number for the recipient.

You can send an ACH transfer without having sufficient funds. But, you will be charged a fee for non-sufficient funds. The money will be deposited in the recipient’s account within a few days. If you make a mistake, such as accidentally sending too much money, you can reverse the payment. However, the reversal is at the discretion of the ACH transfer provider.

There will be a cut-off time for submitting the ACH payment. If you don’t submit the payment by the cut-off time, your provider won’t begin processing the payment until the next business day.

You can typically set up an ACH payment online, whether through your bank or another provider.

ACH vs. wire: the verdict

So, should you use ACH or wire transfers to pay employees?

ACH transfers are best for small, regular payments. You might use ACH transfers to pay monthly bills. Also, payroll direct deposit uses ACH payments to work.

You will use ACH transfers to pay your employees. You can use your payroll provider to set up direct deposit payments. You just need your employees’ bank account information.

Wire transfers are best used when you need speed and certainty of payment for a large amount of money. You might use wire transfers to pay vendors or to make a large down payment when you purchase a building.

When you have a payroll account with Patriot Software, you also have access to free direct deposit. Get a free trial of our online payroll software and start paying your employees electronically today!

This article has been updated from its original publication date of October 9, 2017.