Payroll Cards Improve Direct Deposit Participation

It has been estimated that 50 percent to 60 percent of employees paid in the United States participate in a direct deposit service offered by their employers for payroll funds. This is a growing trend as there are many benefits to employers and employees alike. Direct deposit involves a series of steps that culminates in the employee receiving wages electronically into their bank account, whether they are paid on an hourly basis or salaried.

For the staffing industry in particular, this trend poses a significant potential for savings as the volume of payroll checks for external staff is far greater than that of internal staff. For example, a staffing firm with 20 staff members may employ as many as 500 to 1,000 temporary employees per pay period. The costs associated with paying this many employees is on par with much larger organizations outside the staffing industry who, like you, strive to provide superior service at a minimal cost. By providing direct deposit to your employees, you will experience dramatic savings as well as improve relations with your employees by providing this valuable benefit.

Background on the Market

Over the past eight to ten years, we have all had experiences with either pre-paid telephone cards, gift cards or the omnipresent debit cards. These are all convenient ways to store money that can be utilized either by a specific individual or by the person possessing the card. More recently, the concept of payroll cards has been introduced as an alternative way to provide payroll funds to individuals. These cards are a fairly basic concept that may sound familiar. Load an employee's payroll funds onto a card that can then either be withdrawn from an automated teller machine (ATM) or used to purchase goods and/or services up to the amount associated with the card, just like a debit card. The card, once all funds have been used, can either be re-loaded with funds or discarded. Therefore, instead of an employee receiving a paycheck they receive payroll funds in an account via direct deposit and they are able to retrieve their funds through their payroll card.

The issuance of payroll cards to employees is not completely new. The U.S. government, for example, maintains several contracts among the four branches of the military to provide an efficient, electronic means of distributing funds to service men and women. This is particularly helpful when those employees are overseas or aboard ships where access to banks is limited or non-existent. By providing an electronic means of distributing funds, this eliminates the need for currency, coins, vouchers, money orders, etc.

In addition to the convenience of use, payroll cards offer an added level of security. Typically, the cards use a multilayered integrated chip, which controls access to the funds. The chip is programmed with a user key or personal identification number (PIN). Funds cannot be distributed without the use of the PIN, which only the cardholder knows.

From a much larger perspective, there are about 50 to 60 million people within the U.S. who do not have a traditional bank account. Many of these same individuals do not have credit cards either. We live in a culture that revolves around transactions; transactions that are, by design, quick and convenient. Individuals without a traditional bank account are unable to participate in a large amount of transactions such as general eCommerce, point-of-sale transactions, electronic payment to creditors, etc. Basically, anything where cash is not either accepted or a viable option is simply not available to these individuals. More importantly, individuals who do not possess a bank account are unable to participate in traditional direct deposit offerings.

According to the Federal Reserve Bank of New York, there are approximately 20 million users of these types of cards and that number is expected to increase to more that 49 million by 2008. Obviously, the trend towards a greater level of acceptance is growing. In 2003, these types of cards were used to make $42 billion in transactions. By 2006, more than $72 billion worth of transactions are expected. Experts have indicated that the industry is in the introductory stage of its life cycle, which suggests that there is still substantial growth potential in the near future.

Problems and Solutions

Currently, you may be offering a direct deposit solution for your employees. Direct deposit is a method of payment to your employees which electronically credits their checking or savings account or possibly both. This is a service that you may provide as a benefit to your employees who have been with you for a defined period of time. Even though it may be a benefit to your employees, it also provides a tremendous benefit to your organization. The benefits of such an offering include decreased processing time for payroll, increased security as the funds go directly into an account, reduced fees for stop payment of checks, no lost checks, decreased employee payroll issues, etc. According to the American Payroll Association (APA), these savings equate to approximately $2.00 per contingent employee per pay period.

Many firms have the desire to move towards a greater level of employee participation in direct deposit since the efficiencies are proven and dramatic. The reasons for both employee and employer to find value are obvious. But sometimes just encouraging the idea with your employees is simply not good enough. In many cases, it needs to be a policy of education and commitment to increase participation. However, this is assuming that all of your employees can participate in direct deposit. That may not be the case; take those employees who do not have a checking or savings account, regardless of education or policy, these employees cannot participate.

One new solution for firms desiring to increase employee participation in direct deposit is what is commonly referred to as Payroll cards. A Payroll Card is, in essence, just like direct deposit as funds are electronically deposited into an account that the employee can access. The major differentiator is that payroll cards can accommodate those employees who do not have bank accounts.

Major Benefits of Payroll Cards

For Employees:

  1. Funds are immediately available in account
  2. No approval needed; everyone is qualified
  3. No check cashing fees
  4. No waiting in lines to cash checks
  5. PIN protected; which provides added security
  6. Purchasing power through POS vendors
  7. No lost checks
  8. ATM withdrawal
  9. No need to carry cash on hand
  10. Funds are FDIC insured
  11. Transfer funds
  12. Pay bills online
For Staffing Company Employers:
  1. Decrease cost of distribution of checks
  2. Fills gap in direct deposit participation
  3. Increases efficiency of payroll
  4. Decreases potential check fraud and lost checks
  5. Eliminates stop payment fees for lost or stolen checks
  6. Timely payroll even when employees are away
  7. Provides major benefit at minimal cost
  8. Improves employee loyalty
Challenges for the 'un-banked' provide opportunities for better service

There are not many categories that you can split your employees into easily; however, one thing is true