Punch to Paycheck

The news today that Walmart would issue payroll cards for employees not on direct deposit – as opposed to checks and stubs – struck us as innovative… at first. Then a million questions came into our heads.

I spoke to Jeff Vogt, FPC, iEmployee Product Specialist about the postives and negatives of this move.

“Obviously this is going to save them a lot of money,” said Vogt. ”From an employer perspective,  you setup direct deposit to payroll cards the same way you handle traditional direct deposit to a checking account.” 

According to the American Payroll Association, about 30 percent of the U.S. population in unbanked. That means they’re more likely to cash their paychecks, pay a fee, then carry around a dangerous amount of cash.

Payroll cards eliminate many of these problems, says Vogt. So there are definitely upsides for employees, too.

But what would be a downside to using payroll cards? “Change,” says Vogt.

“I remember when people were nervous about direct deposit. Employees just really want to see that check. So I imagine it would be difficult to break employees of the habit of expecting a paper check or stub.”

Here’s more data from the American Payroll Association:

• As much as 30% of the U.S. population does not have a bank account
• More than four million paychecks are lost or stolen each year
• Lost paycheck replacement costs are estimated to be $48 million annually
• Companies can save up to $1.25 per payment using electronic disbursement instead of checks
• The chance of having a problem with a check is 20 times greater than with direct deposit
• Studies show that employees may spend the equivalent of three work days each year going to the bank

If you’re considering using a payroll card system, here is an overview of guidelines for choosing a vendor. (For the complete list, go to ConsumersUnion.org.)

1. Don’t use a payroll card vendor unless you know it is financially sound.
2. Use your contract with the issuer to require consumer protection equal to bank debit cards.
3. Pay the monthly fee or negotiate a contract with the issuer that there will be no monthly fee.
4. Identify and restrict the fees to employees in your contract with the issuer.
5. Check whether the card gives your employees money management choices, such as a direct debit to pay regular bills, or a direct transfer every month into a savings account.
6. Can the account be overdrawn, and if so, what happens?
7. Give employees a choice.
8. Require protections for your employees’ financial information in the payroll card contract.
9. Make the payroll card a first step toward improved financial stability for your employees.
10. Choose a payroll card that does not encourage your employees to borrow from future paychecks.
11. Will your employees be able to receive all card information, and telephone customer service, in a primary language other than English?