In a world where payment methods are changing – from our Starbucks lattes to our monthly rent – why not as well the manner in which employers compensate their staff?
Indeed, businesses today have more payroll options than ever before, such as direct deposits, cryptocurrency transfers, PayPal and mobile payments; it's all a far cry from handing out gold coins or paper cheques.
As startups and corporations continue to experiment with new tools with which to pay their workers – including the implementation of emerging technologies – other alternative methods are also gaining traction. One such idea is payroll cards for employees, and they could be a viable option for your organisation.
What Are Employee Payroll Cards?
A payroll card is a prepaid card that employers can use to deposit an employees' salary, wages, benefits or bonuses. An alternative to paper cheques or direct deposit, workers can then take these debit cards and withdraw their money from an ATM, make electronic payments and transfer funds between accounts. The cards are designed to be reloadable, so staff do not require a new card each payday and new funds are deposited each pay period.
Is it the right approach for your business and your employees, though? Here are some of the key advantages and disadvantages to implementing and using such a system.
You Can Transfer All Benefits to Payroll Cards
Instead of distributing compensation – bonuses, vacation pay or benefits – through a physical cheque or an envelope stuffed with cash, you can instead allocate these funds through a pay card. Alternatively, if employees have used their vehicle for work purposes or accrued any other expenses while on the job, then they can be reimbursed almost immediately without the hassle of a drawn-out administrative process.
Aside from the increased speed in which funds can enter the account, it also offers discretion. For example, if one of your employees is receiving a bonus, but others aren't, money can be transferred quietly into their account rather than handing them a physical envelope and causing resentment with everybody else.
They Save Money on Printing Costs
It is estimated that paper costs account for around 3% of the average company's revenues, which could explain businesses – large and small – gradually going paperless. The cost of printing a physical paper cheque or statement is quite high, particularly for companies that have a large workforce. When you factor in processing, printer ink, postage and everything else that is involved in issuing paycheques, the costs add up over time.
Prepaid cards for employees can produce substantial benefits for both sides. The employer spends less on paper and ink, while workers may not need to pay for cheque-cashing services or wait for a cheque to clear at the financial institution.
They Cut Down on Administration
Despite the widespread utilisation of payroll processing software within most companies, it still requires a lot of administrative duties to conduct payroll accurately. A pay card eliminates several of these steps, which also helps the organisation as the payroll administrator can concentrate on more pressing tasks.
They Offer Employees Protection
In most developed countries, payroll cards are supported by governmental institutions. In the US, for example, the Federal Deposit Insurance Corporation (FDIC) backs payroll cards, meaning there are far more recovery options in the event of loss, and fewer forgery cases.
Additionally, should an employee be a victim of theft, then they can report the lost payroll card to the employer and receive a new one with the current balance. How long this takes might depend on the company – for employees, even a day might be too long!
They Provide Accountability
Let's face it: a lot of workers struggle to keep their heads above water come payday. No sooner is a salary paid out, than a large chunk of it has disappeared, either due to mortgage payments, utility bills or servicing consumer debt. By the time Monday rolls around, employees are already wondering where their hard-earned money has gone.
Like a debit card, employee pay cards allow your workers to track every transaction, clarifying where exactly everything is going. It is a convenient way to enhance personal accountability for your employees' hard-earned income and keep track of their monthly budget.
They Boost Productivity Levels
If your business does not provide direct deposit and relies on paper cheques, then you might notice a dip in productivity levels. Why? If some employees are unbanked and depend on a cheque-cashing facility, then they will take time out of their eight-hour day to deposit the cheque and withdraw their money. Even employees that possess a bank account will still spend a portion of their shift to visit an ATM or bank teller and deposit a cheque, which is an extra hassle for them, and an inefficient way of doing business for you.
They Give the Unbanked a Little Help
Either through choice or because of their personal circumstances, it's not a given that all of your employees will have a bank account. It can be quite expensive to live this way because cheque-cashing companies, payday loan stores and other alternative financial businesses are costly.
However, a payroll card allows your unbanked or underbanked employees to save money and time. By doing this, your company might witness a myriad of benefits, such as lower turnover rates, higher productivity and greater loyalty to your business.
Depending on the provider you have hired, payroll cards will come with fees, including decline, balance inquiry and account closure fees. The one that hurts the most, though, is likely to be the monthly maintenance fee, which may or may not be covered by the employer. For example, the E1 Payroll Card offered by Visa charges $2.95 per month, though it is waived if there is a deposit in the card in the same month. Overall, you are paying more in fees for a payroll card than a gift card.
Local Law Restrictions
Believe it or not, but many local governments have slapped restrictions on payroll cards. Some of the regulations include prohibiting so-called junk fees, mandating deposit insurance, prohibiting overdrafts and ensuring better access to worker funds. Because of this, many employers might find that employee payroll cards are not worth the headache, should the government wield its club and force the office to transition back to direct deposit or paper cheques.
Lost Funds Are Hard to Recover
If an employee is subjected to a data breach and, subsequently, fraud, then it might prove difficult to recover any lost funds. You will need to submit a claim, followed by an investigation by the card provider and, even then, it may take a long time to receive the defrauded money. If your staff members live paycheque to paycheque, then they will be frantic until they see their full account balance.
You Lose Time Replacing Cards
A lost payroll card is a concern for both you as an employer, and your employee. If this happens, you are at the mercy of the issuer in regards to the length of time to distribute a new card, verify the account holder and confirm the total balance.
Employees are Averse to Change
It is a natural human characteristic to be wary of change. Consider it from the perspective of your employees, for instance; after years of receiving a paycheque at the same time each month, you are now suddenly given a card and told to make your own arrangements for transferring funds to your bank account.
While it may be more convenient in the long run, you will likely meet some resistance when implementing the change.
While there are compelling arguments here for and against payroll cards, a 2018 study by the Center for Financial Services Innovation (CFSI) suggests that payroll cards are a popular payment option among employees.
Therefore, it could be worth offering as an option, especially if your current payroll structure has room for improvement.
What do you think? Are payroll cards a fad, or the future of employee salaries? Let us know your thoughts in the comment section below.