Payroll cards are a nice benefit to offer to your employees who don’t have or can’t get a checking account. If someone has handled a checking account poorly in the past by overdrawing it a lot and particularly if the bank has had to charge off any amounts, they will not qualify to open a checking account at another bank for some time. There are other reasons why one might not have a checking account but regardless, we are seeing more and more need to accommodate the unbankable.
A payroll card fits this bill inasmuch as it allows you to pay your unbankable employee electronically. A payroll card is a reloadable debit card. It is funded by the employer the exact same way a direct deposit payment is funded and the deposit is placed on the payroll card instead of into a bank account. Funds on payroll cards are accessible at ATMs and point of sale locations. The cards are typically MasterCard or Visa branded.
A study conducted by the Federal Reserve Bank of Philadelphia reported that for workers without bank accounts, payroll cards are the most cost-effective way to receive funds. The Community Affairs Department of the Comptroller of the Currency estimates the total annual fees for payroll cards at $72 per year. By contrast, the use of a check casher to cash paper checks costs $246.48 per year and fees for a basic bank account are $79.40 per year. Workers report that the small fees associated with the use of cards are more than offset by the convenience and immediate accessibility to cash that stored debit cards offer.
From the employer’s perspective, the use of the cards is more economical than issuing paychecks. The Association of Financial Professionals Payments Advisory Group reports that the cost of issuing a paycheck averages about $2.00 per check as compared to the cost of $0.31 for deposits onto payroll card accounts. Even more costly is dealing with a lost paycheck. Time is spent in the payroll system voiding the lost check. A stop payment must be issued which usually runs around $30, and the paycheck must be reissued. The American Payroll Association reports that more than four million paychecks are lost or stolen each year.
Contact your banker to find out what kind of program your bank offers. Ask for a disclosure of all the fees – some banks will charge the cardholder, some will charge the employer, and some will give the business owner a choice. For many businesses, this is one benefit that many employees will appreciate.