At the American Payroll Association's annual meeting in May, Lisbeth Green's workshop on payroll cards drew a standing-room-only crowd of 230 people. "That shows you the interest [in payroll cards]," says Green, president of payroll consulting firm L.K. Green & Associates in Santa Clara, Calif. "It's growing every single day."
Why bother with pay cards when there is direct deposit? Despite the big savings possible with direct deposit, only about 60% of U.S. employees are paid that way, says Green, and about half of the workers who aren't simply don't have bank accounts.
That challenge has led companies to consider payroll cards, which work whether an employee has a bank account or not. The corporate advantage: It's cheap. Where cutting a check can cost between $3.50 to $4 per check, a payment via payroll card is estimated at $2.
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In the last few years, banks and third-party providers have started offering payroll cards. But the idea gained real momentum when both Visa and MasterCard joined the fray during the last 12 months with their own branded versions.
For an employer, a payroll card works just like direct deposit: The company transmits an electronic file to the bank telling it how much to credit to an account-be it a direct deposit to an employee's checking or savings account or a credit to an employee's payroll card. Participating workers get a piece of plastic that looks like a charge card and is credited with their earnings every pay period. They can use it to get cash at an ATM instead of standing in line at the bank or being hit with what's typically an exorbitant fee at a check-cashing establishment. Many cards can also be used as debit cards at stores. Employees with payroll cards issued by Visa or MasterCard can use them at retailers and restaurants within each credit card network. And the PINs used with most cards make them more secure.
Eliminating Printing
Tim Swango, national director of human resources for Trammel Crow Residential, a Dallas-based apartment builder and manager, reports that by last year, about 80% of his 2,400 employees were participating in direct deposit. When the company introduced Bank of America's CashPay, a Visa-branded product, another 15% or 16% of its employees signed up for that. "The key for us was eliminating the burdensome and costly printing" of paychecks, Swango says. He estimates the company will save at least $50,000 a year on printing and distribution costs alone.
Green says the savings vary according to company size. However, for all employers, the savings reflect not only the cost of cutting checks, but also the costs involved in replacing lost checks and from check fraud.
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