by JB Donaldson, Vice President, Strategic Card Solutions, Xerox
It wasn’t that long ago that cashing or depositing your paycheck was a regular ritual on a payday lunch break. These days, most of us receive our pay by direct deposit, and it just appears in our checking or savings account with no effort on our part. Most of the time, we don’t give it a second thought.
But what about the millions of workers without bank accounts? Studies estimate that as many as 28 percent of Americans are unbanked or underbanked, relying on check-cashing storefronts or payday loan providers to get access to their wages. And the less they make, the larger the percentage of their wages they’re forced to fork over for that access. An employee making $26,000 annually loses $750 of that figure to fees for check-cashing and money orders – nearly three percent of their entire earnings for the year.
If you’re responsible for issuing payroll to employees, you can change this cycle with payroll cards.
What is a Payroll Card?
Employers use payroll cards to deposit paychecks for employees without checking or savings accounts, and they work much like a traditional debit card. Payroll cards work everywhere Visa or MasterCard is honored. Just like debit cards, employees can use the card at stores, gas stations and other locations. They can also get cash from ATMs or by getting cash back with a purchase at many retailers.
Benefits to Employees
For unbanked employees, paper checks are costly. Whereas those with bank accounts can complete certain transactions free of charge, the unbanked incur charges every time they need to:
- Cash their paycheck to get access to their wages
- Get a money order issued to pay any bill that cannot be paid in cash
In addition to the money lost to fees, these unbanked employees also lose time and productivity, since they have to set aside time to travel to these locations and complete the transaction. Payroll cards save them the waiting in line and wasted drive time they’d otherwise incur. Payroll cards also make funds available instantly – a huge benefit to employees without a savings cushion in their accounts.
The Federal Reserve notes that payroll cards are the most cost efficient transaction accounts available, 80% less expensive than check cashing services. Payroll cards also offer the protection of being regulated and FDIC-insured.
Benefits to Employer
You’ve probably already realized a lot of the benefits of moving away from paper checks by offering your employees an option for direct deposit. Payroll cards can make these benefits available for the remaining segment of your employee base. Paper checks are costly to issue and vulnerable to loss, fraud and theft, as well as mailing delays. Switching to payroll cards is a fairly simple procedure that integrates with your current process, and can make it easy to pay both W2 and 1099 employees. Also, with the right service provider, you and your employees can get access to additional tools such as:
- online statements
- immediate card replacement
- fraud detection tools and methodologies
To see how switching to payroll cards can be a win/win for you and your employees, read more about payroll cards by clicking here.