With the rise and ease of direct deposit, paper paychecks have pretty much gone the way of the dinosaurs. But, did you know there’s another paperless option you can use to pay your employees? Paycards offer a distinct advantage to employees who are underbanked – those who have a bank account but rely largely on unconventional finance options such as check cashing services – or unbanked – those who don’t have a banking relationship at all. Their wages are simply loaded to a reusable, refillable card that can then be used at points of purchase or ATMs.
Estimates from a 2017 Federal Deposit Insurance Corporation (FDIC) survey showed that 6.5% of households in the United States were unbanked, representing approximately 8.4 million households. Additionally, 18.7%, or 24.2 million, were underbanked. More than 30% of these households have an annual family income of $25,000 or less. And, while unbanked and underbanked employees can be found in all industry segments, the greatest concentration can be found in construction, staffing, hotels, and franchise businesses such as restaurants.
Pros of Paycards for Employees and Employers
Providing payments directly through a debit card saves you money by not wasting it on the paper used to print checks. Payroll debit cards for employees also eliminates the manual preparation, printing and distributing required from your payroll department, letting them focus on other tasks and saving your company money. Additionally, using a paycard can save your unbanked employees time and eliminate the exorbitant fees charged by expensive check-cashing stores and predatory payday lenders. And, they get the same legal protections from fraud that debit card holders have.
Paycard Challenges
As with any form of pay, paycards do have some considerations to look out for. Depending on the provider you use, the cards can hit employees with fees for items such as monthly maintenance, point-of-sale charges, ATM use, and some even charge for calling to check the card balance. It wouldn’t take many $1.50 ATM fees to wipe out an hour’s worth of work for employees who make minimum wage.
Another consideration: although employee paycards can be a money-saver for your company, you legally can’t require employees to switch to that payment method. You have to provide the option of a paper paycheck or direct deposit.
Best Practices for Payroll Card Use
If your company decides to use paycards, it’s best to follow a few simple rules to help ensure you stay in compliance with state and federal laws:
- Do not make the paycards mandatory; ensure you have other pay options.
- Select a paycard company that has limited fees.
- Ensure that you disclose all details about the paycard versus other pay options.
- Ensure that the paycard company you select allows employees to withdraw the full amount of their pay each pay period in multiple withdrawals without fees.
- Ensure there is a sufficient number of ATMs and stores nearby where the card can be used for purchases or cash withdrawals.
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