The Truth About Payroll Cards – They’re Here to Stay

By Josh Davis

There has been a lot of buzz revolving around the payroll card industry after a recent lawsuit that sprung up, negative press articles appeared, and the start of an investigation by New York Attorney General, Eric Schneiderman, began. So, I sat down with Bernie Nolan from Global Cash Card to get both sides of the prepaid payroll card story and offer an overview for payroll providers still interested in or concerned about providing this as an option to clients. To read Bernie’s guest post on our blog about the benefits of providing paperless pay options to your clients, click here.

The Market for Payroll Cards is Growing… Fast
It is important to note as a provider of payroll services that the payroll card industry is continuing to grow at a steady rate. In fact, according to a report by the Aite Group, $34 billion was loaded onto 4.6 million active payroll cards last year, and it is expected that it will reach $68.9 billion on 10.8 million cards by 2017. This growth can potentially be attributed to a number of different reasons. Here are two reasons that we suspect may be a root cause for this:

  • Estimates from the Federal Deposit Insurance Corporation say that 24 million households do not have a bank account, and about 10 million households do not use a bank at all. This is where payroll cards are typically most effective, as they don’t carry nearly the amount of fees associated with check cashing stores.
  • Electronic payment is already the main method of payment throughout America today. In fact, according to the Social Security Administration 98.1 percent of payments are made through direct deposit, while only 1.9 percent of payments are made via paper check. This may be due to the fact that electronic payments provide a savings of anywhere from $2.00 to $4.00 for each payment when compared to paper checks.

Reasons for the Negative Payroll Card Press
When any industry grows, the number of vendors within that industry will grow by default as well. The payroll card industry is no exception, so it’s important to be weary of what company you partner with in order to provide payroll cards to your clients. The reason for much of the recent negative press can potentially be attributed to two main reasons.

  • Payroll Card Fees – There is a laundry list of fees some payroll card vendors pass on to employees for the usage of these cards. These can include fees for ATM withdrawals, card usage, paper statements, replacement cards, inactivity, money transfers, balance inquiries, account closings, and overdrafts. The vendor you choose should be providing a payroll card that allows employees to receive their entire pay down to the penny if they should choose to withdraw it all at one time. And if there are any fees associated with these payroll cards, it is important for you or your clients to explain to their employees what they are, and when they’ll be applicable. However, these fees should be reasonable, and not include many of the items on the laundry list mentioned above.
  • No Alternative Payroll Options – The reason for the recent lawsuit in Pennsylvania was that there was no option provided by the end-user company outside of a payroll card. However, the American Payroll Association has noted that a number of different states’ legislation can be interpreted as allowing companies to eliminate paper checks, and that employers can require payment via direct deposit OR a payroll card. You’ll notice that this American Payroll Association list does not include Pennsylvania, but to mitigate risk, it may make sense to suggest that your clients provide multiple options, especially since the lawsuit does not yet have a ruling.

Do you already provide an option for payroll cards to your clients? If so, what terms does the vendor that you partner with provide, and what feedback have your clients shared from their staff about the cards? If you don’t already provide payroll cards to your clients, take a look at our previous post entitled Service Providers Find it Beneficial to Provide Paperless Pay to Clients.

About Josh Davis:
Josh is the Marketing Programs Manager at SaaShr responsible for increasing the growth of channel partners while positioning the SaaShr brand to the market through the development of both traditional and digital marketing endeavors.

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