ACH vs Wire Transfer for Payroll: 5 Key Factors to Make a Choice

Despite ‘return-to-office’ policies, Deel’s State of Global Hiring Report 2023 shows that distributed hiring across domestic and global talent continues to thrive. However, the benefits of tapping into diverse talent across nations, pay ranges, and currencies may result in slightly complex payroll processes.

A key dilemma for business owners and finance managers is deciding between ACH vs wire transfers for sending money to their globally distributed teams. Our guide simplifies this choice by comparing five key factors:

• Time available for sending money
• Transaction fees
• Transfer destination
• Transaction size
• Need for reversals

Using the above, we will help you make a final decision on choosing between ACH vs wire transfer for your payroll needs.

What are ACH payments?

The Automated Clearing House (ACH) transfers are an electronic funds-transfer network for sending money across banks in the US. Think of it like digitizing paper checks without human involvement for B2B, government, and consumer transactions. This includes paying bills, tax refunds, delivering social security benefits, payroll, and more.

You might already use ACH transfers without realizing it—they're often called 'bank transfers,' 'direct deposits,' 'direct debits,' or 'auto-pay.' Common FinTech services like PayPal, Wise, and Venmo also use this technology.

How does ACH payments work?

The Automated Clearing House acts as a central authority for processing bulk transfers between banks.

In the case of payroll, the company’s bank (Originating Depository Financial Institution or ODFI) sends employee payment details at regular intervals in a batch to the ACH network operator, which then distributes them to the receiving bank (Receiving Depository Financial Institution or RFDI).

The National Automated Clearing House Association (Nacha) regulates and oversees these transactions to ensure security and reliability. This makes ACH network a cost-effective option for bulk or recurring payments like payroll.

In 2023, ACH transfers moved $8.1 trillion USD, reflecting its maturity and trustworthiness as a payment method.

What is a wire transfer?

Sending money via wire transfer happens directly between sender and receiver banks. They use secured systems like Fedwire or SWIFT which facilitate information sharing for such transactions. This makes it suitable to transfer large funds in the shortest time.

There are two types of wire transfers:

1. Domestic wire transfer: Transfers funds between banks within the same country, usually within a few hours.
2. International wire transfer: Sends money between banks across different countries within 1–5 business days. You require SWIFT codes and currency conversions.

Note that the sender of a wire transfer pays a transaction fee, with no federal limits on how much banks can charge.

How do wire transfers work?

Wire transfers move funds by sending payment instructions, not physical money. 

For example, the sender pays upfront with fees, and the sending bank uses a secure system like Fedwire or SWIFT to send payment instructions to the receiving bank. Using these instructions, the receiving bank deposits its reserve funds into the correct account number. Then, both the sender and receiving banks settle the payment on the back end.

What are the key differences between ach transfers and wire transfers?

The difference between ACH and wire transfer depends on the financial institution involved, transaction nature, and account type. But broadly, here’s how they differ in terms of:

1. Transaction speed

How long do ACH transfers take to settle?

Since ACH transfers occur in batches (i.e. not instantaneous), standard ACH transfers may take 1-3 banking days to complete a transaction. ACH credit transactions, like payroll, get processed within 1-2 banking days. ACH debit transactions, like bill payments, take one banking day.

Some banks offer same-day ACH transfers from business to the recipient's bank, usually at additional costs.

How long do wire transfers take to settle?

Domestic wire transfers are typically completed within a few hours or the same day if done by the bank's cutoff time. Larger domestic checks and international transfers may take 1-5 business days.

2. Transaction costs

How much does ACH payment processing cost?

Many banks do not charge for ACH transfers. Even if they do, according to the AFP Payments Cost Benchmarking Survey 2022, the average cost of initiating and processing ACH payments lies around 26 cents–50 cents only.

Low costs make it suitable for processing recurring transactions like bill payments, employee payroll, or paying US contractors.

How much does a wire transfer payment cost?

Wire transfers are costly compared to ACH payments, wherein the actual cost depends on the cheque size and transaction destination.

Typically, the wire transfer fees range from $5–$50 for incoming and outgoing domestic and international wire transfers. Thus, wire transfers are fast but come with high transaction costs, making them suitable for urgent or large payments.

For international wire transfers, use the World Bank’s Remittance Price Calculator to estimate potential remittance costs by entering source and destination countries.

The additional transaction fees charged vary by bank, as there is no federal cap. This means, your total wire transfer fee will depend on your choice of bank and offers provided by them on wire transfers.

Here are examples of what some US banks charge for wire transfers as a comparison. You can observe how fees are dependent on multiple factors such as the direction of the transaction, account type, currency, and offers.

3. Security and fraud prevention

ACH and wire transfer are safe—but scammers or hackers are getting smarter. While the technologies are safe, external risks like social security number leaks in the USA increase vulnerabilities.

How secure and reversible is an ACH payment?

ACH transfers are reversible and can be stopped or canceled if the bank finds risk or the initiator wants to cancel the transaction. This happens after detailed verification and scrutiny as per Automated Clearing House’s regulations.

How secure and reversible is a wire transfer payment?

Once you send a wire transfer, it is often irreversible and difficult to retrieve funds if you make any errors. This makes it a favorite tool for scammers—for example, you may have heard of fake contests or inheritance email scams that ask the victims to wire transfer the money.

Because of this, wire transfers are subject to scrutiny from banks or authorities, requiring proof of authorization or identity documents.

4. Availability and accessibility

ACH transfers are limited to US banks and financial institutions. On the other hand, you can send remittances across the globe using wire transfers.

What are ACH transfer schedules and funds availability?

The National Automated Clearing House Association (Nacha) controls the batch processing of transactions for both sender bank (OFDI or (Originating Depository Financial Institution) and receiver bank (RDFI or Receiving Depository Financial Institution) according to the below official schedule:

You can check Nacha’s guidelines on ACH funds availability and schedule timings to align your transactions.

What are wire transfer schedules and funds availability?

Wire transfers are your best option for international payments, making it a valuable transaction infrastructure for businesses with global payrolls. The schedules and funds availability are subject to your bank's wire transfer processes.

Checklist: When to use ACH vs wire transfer payment for payroll

We have prepared a quick six-question checklist to help you decide between ACH vs wire transfer for payroll:

What are the pros and cons of ACH and wire transfer payments for payroll?

Pros of ACH payments:

• Payroll automation: Once employees authorize direct deposit, your company can automate payroll administration for timely and consistent salary disbursement
• Convenience: Employees receive paychecks directly into their account number, avoiding bank visits
• Security: ACH is secure, regulated, and offers reversible transactions, adding a layer of protection in case of errors or payroll fraud
• Cost-effective: Low or no fees make ACH ideal for frequent payroll processing

Cons of ACH payments:

• Slow processing: It takes 1-2 business days to process transactions, making it unsuitable for emergency payments
• Dependence on bank processing times: ACH network processes transactions in batches at specific times throughout the business day. If you miss a payroll submission, it may not get processed until the next business day, delaying employee payments
• Extra fees for same-day ACH processing: Same-day payments incur additional costs. Your company must adhere to deadlines or incur extra costs
• Compliance: To avoid penalties or legal issues, your company must adhere to ACH regulations, including obtaining proper employee authorizations
• Domestic use only: being limited to U.S. transactions complicates global payroll needs

Pros of wire transfer payment:

• Global reach: Wire transfers enable companies to hire and retain international talent Payroll software like Deel helps digitize and streamline these international payroll processes. This helps tap into diverse talent and expand the company overseas
• Reliable: Ideal for large transactions to facilitate paying high salaries or bonuses
• Speed: Quick processing helps companies with tight payroll deadlines pay salaries on time, often within hours for domestic payments

Cons of wire transfer payment:

• High costs: Fees range from $15 to $50+ per transaction which add up for frequent US payrolls
• Complex setup: Requires detailed recipient information with no room for errors in account numbers. This complicates payroll setup, especially for international employees with varied currencies and local regulations
• Irreversible: Wire transfers cannot be reversed once initiated, increasing the risk of costly mistakes

Choosing the right option for your business—with examples

Let’s apply our ACH vs Wire Transfer checklist to solve two common scenarios. 

We will consider each scenario’s special needs across:

• Frequency and size of transaction
• Geographic scope (domestic vs. international)
• Budget constraints
• Need for transaction speed and urgency

Scenario 1: A small business processing payroll for US employees

A small business needs to process monthly payroll for 50 US employees. The goal is to pay on time while minimizing transaction costs.

Conclusion: ACH money transfers are the best choice here due to low costs, regulated processing, and automation which are essential for recurring domestic payments.

Scenario 2: A multinational corporation (MNC) paying a supplier overseas

An MNC needs to pay a European supplier $1 million for materials. The goal is to ensure quick payment to avoid production delays.

Conclusion:

For this scenario, a wire transfer is the better choice due to its speed and suitability for large, international payments.

Use payroll software that supports ACH payments and wire transfers for flexibility

ACH transfers and wire transfers have their strengths—you need to categorize your requirements depending on transaction size, frequency, urgency, and budget to decide accordingly.

To simplify the choice between ACH vs wire transfer, use flexible payroll management software like Deel Global Payroll to help you streamline your employee payroll processes. Global teams like Shopify, Reddit, BCG, Calvin Klein, and more use Deel to automate payroll administration and employee onboarding across nations.

With Deel, you can consolidate HR operations for better visibility, all while you work to expand in international markets—book a demo to learn more.