Payroll cards offer a better way to pay

Filed under: Focus |

A growing number of employees are no longer receiving paychecks. Yes, they’re still being paid but with a payroll card instead.

The payroll card functions like an ATM or debit card, allowing employees to access their earnings with a swipe of the card rather than depositing or cashing a payroll check.

The card arose as an alternative way to pay the “unbanked” – that is individuals who do not have an account with a financial institution.

Many teenagers, low-wage workers and part-time workers fall into this category, along with anyone else who cannot afford or chooses not to have a bank account. For this group, few good options exist for cashing their checks. The payroll card provides an innovative and cost-effective solution.

As payroll cards benefits come to light, many employers are offering this choice to other employees as well.

Here’s how they work: Employees get a Visa- or Mastercard-branded card. Each pay period, the card is loaded with the employee’s net pay. Employees can withdraw cash as needed from local ATM machines, or use the card where ever Visa or Mastercard is accepted. They can also use the card to make PIN-based transactions, where they can get cash back from participating merchants.

Employees do pay some fees to use the card. Some are charged small monthly maintenance fees, and all pay nominal transaction fees.

For example, there are fees for ATM withdrawals (similar to those charged to non-bank customers), transferring money to a bank account and point-of-sale debit use.

Many programs allow the first ATM withdrawal per pay period to be free.

In today’s competitive business environment, where every penny counts toward the bottom line, the payroll card is a proactive and cost effective approach that offers a number of benefits for both employers and employees.

Employer Benefits

Cost savings: Producing a payroll check – with all the steps, materials and labor involved – can cost upward of $2 per employee per pay period.

Payroll cards are up to 75 percent cheaper to issue than checks. Companies save money by eliminating check stock, printing, envelopes and stuffing, and by bypassing check processing at the bank.

Consumer Reports magazine estimates that converting to a payroll card can save employers up to $100 per year per employee.

Productivity boost: Meeting payroll is dramatically simplified, leaving employee time for more productive pursuits.

Reduced theft risk: With no checks to lose, there’s no risk of checks being stolen. And the payroll card’s PIN protection makes it a far more secure payment method.

Effective recruiting and retention tool: The flexibility, convenience and cost savings offered by the payroll card program makes it an added enticement for employees.

Employee Benefits

Convenience: Employees no longer need to wait in teller lines to cash payroll checks at a bank or check-cashing stores, which charge hefty fees.

Employees can withdraw their money at over 350,000 ATMs or use as a credit/debit card at more than 2 million point-of-sale, PIN pad secured terminals. And they don’t have to be in the office to receive their wages. Payday is payday wherever they are – just so long as they have their payroll card on hand.

Cost savings: The New York Public Interest Research Group says check cashing costs the average worker $324 a year. That cost could be cut in half with a payroll card, according to Consumer Reports, which estimates a payroll card averages $164 a year in card-usage fees.

Faster funds availability: Funds become available as soon as they are loaded onto the card.

Employees don’t have to wait a day or more to access their money as they sometimes do with checks. Also, at an employer’s discretion, commissions could be loaded onto a card within 24 hours of a sale – reducing the time the employee would otherwise have to wait for a check to be processed.

Reduced risk: Payroll Cards are PIN-secured to reduce the risk of unauthorized withdrawal. If lost, they can simply be replaced with a new card. There’s no need to issue a stop-payment as one would with a check.

Some estimates suggest that 3.8 million employees will be paid with payroll cards by 2006. The many benefits make them a far superior method of employee payment, prompting many to wonder just how long before paper checks will be as outdated in the business environment as the typewriter and the telephone switchboard.

Kim Bonniwell is market president for Vectra Bank Colorado’s Pikes Peak region. He can be reached at (719) 575-6431 or