Paycards Versus Paychecks

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There’s been a lot of controversy lately over the use of payroll cards instead of paychecks for delivering employee compensation. The practice of using paycards was implemented by employers as a convenient way to pay employees who don’t maintain a traditional bank account. With many employers now processing payroll by direct deposit via electronic funds transfer (EFT), paycards offer a convenient alternative for paying employees who can’t receive their pay via EFT.

More recently, some organizations have expanded their use of payroll cards. For example, MacDonald's has allowed individual franchise owners to decide how to pay employees. This has resulted in a much wider use of payroll cards in some areas, sometimes without even offering the option of a printed paycheck. Paycards are increasing in popularity for reasons other than the absence of traditional bank accounts. They allow an employer to use a single method of payment for everyone, simplifying payroll administration. The fees and overhead costs associated with paycards are generally lower than the cost of processing printed checks, so paycards may also reduce payroll costs for the employer. No doubt, one reason payroll cards are less costly to employers is that most card issuers also charge fees at the other end. And there’s the rub. According to Ben Jackson of Mercator Advisory Group (as cited by Forbes),

“The payroll laws vary from state to state, but the underlying principle of the laws boils down to this: Employers cannot compel workers to take their pay in a way that costs them money.”

Although fees vary from issuer to issuer, they range from $1.75 for an ATM withdrawal to a $7 fee when a card is declared inactive. In other words, with paycards employees may even face “non-user” fees. These fees have caused some employees to rebel against paycards when no other payment option was offered. The debate over payroll cards will likely persist as their use expands to a projected $62.6 billion dollars in face value by 2016[1]. Both employers and card providers will have to navigate a complex legislative environment in the face of their growing popularity.

Whether or not paycards survive as a preferred method of payment, employers will continue to look for ways to streamline payroll processes and reduce administrative costs and the payments industry will continue to offer creative solutions. Perhaps the paycheque of the future will be a direct deposit into a virtual account or mobile wallet that gives employees fee-free access to funds through smartphones, debit cards and point of sale terminals. Of course, then we'll have to ask "What happens to the employee with limited internet access, or no smart phone?"

Or maybe the solution for payroll in a non-traditional world will be something completely different. Taking a new spin on an old approach, perhaps companies will set up payroll trust accounts and issue every worker a debit card (or subcutaneous ID chip!) that provides fee-free access to their balance. With the protection of labor legislation and appropriate regulatory oversight, the shortcomings of the historical “company store” could be avoided. Such a system might offer a cost effective alternative to businesses and provide equal access to all employees. And, if this hypothetical payroll trust was fully integrated with a company’s business information systems, it might even allow employees direct access to accrued vacation pay or provide limited overdraft protection via payroll advance.

Who knows what may emerge as payroll becomes more global and more complex. What we do know is this: the payments industry will continue to evolve and big business will continue to look for ways to reduce payroll overhead. Inevitably, where these two trends intersect, innovation and experimentation will continue to happen. Interesting times indeed!


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Who Wants to Be a Leader?

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The Latest from Workplace Tribes
Paycards Versus Paychecks September 29, 2014
Who Wants to Be a Leader? September 26, 2014
Workplace Diversity: Resource Roundup September 24, 2014
7 Tips for Hiring Top Design Talent September 22, 2014
The New Recruiter September 19, 2014
Did That Job Posting Say Salesman? September 17, 2014
How to Prepare for One-on-One Meetings with Your Manager September 15, 2014
Twenty-one Questions for Great One-on-One Meetings. September 12, 2014
One-on-Ones: Making them Work September 10, 2014
Bridging the Gap between HR and Finance September 08, 2014