Posted on July 31, 2013

Paper or Plastic? The Pros and Cons of Paycards

Recently, paycards have been generating a lot of buzz. Paycards are an alternative method of paying employee wages—instead of payment via paper check or direct deposit, an employee’s pay is loaded onto a debit card each pay period. These cards eliminate the need for a traditional bank account, and allow companies to go completely paperless. Many employers have implemented a paycard system, but the advantages and disadvantages of paycards must be weighed before making a decision to switch.

Using a paycard system

Generally, paycard systems work in the following way:

# An employer establishes an account with a paycard program.
# The program or its partner bank issues the paycards.
# Employers deposit money into their account.
# Each employee’s wages are deducted from the employer account and are loaded onto their card every pay period.
# Employees receive a PIN and can use their card as if it were a traditional debit card.

Employer costs depend on the volume of workers using the cards and fees imposed by the bank and the program. Employees may be charged different fees depending on the program, including monthly fees, ATM fees and withdrawal fees.

Naturally, the mention of so many potential fees has raised red flags surrounding the idea of paycards. That’s why it is important to examine the pros and cons of using paper checks and direct deposit, versus implementing a paycard system.

The case for paper

* Paycards can turn out to be a costly option for employees, especially if they are not given the option of a paper check. For example, research done by the New York Times found that one provider charged $1.75 for ATM withdrawals, $2.95 for a paper statement, $6.00 to replace a lost or stolen card, and $7.00 for inactivity fees.
* Payroll laws in some states prohibit employers from compelling their workers to receive their pay in ways that cost them money, and some paycard systems do just that by collecting so many fees.
* Depending on the program, paycards may not necessarily reduce the processing costs for the business of employees.

However, despite these criticisms of paycards, paycards can be a very advantageous option for companies that partner with the right provider.

The case for plastic

* One in four families in America today is considered “unbanked.” This means they do not have access to a mainstream bank account or the financial services it provides. These families cannot receive direct deposit payments.
* By switching to paycards, unbanked employees can save up to a week’s worth of salary they would have otherwise lost to the accumulation of small fees.
* Employees can use paycards without a credit check or any bank account requirements.
* *Paycards can be cheaper than paper checks*—by up to $2.75, according the American Payroll Association.
* For most employers, paycards are easy to set up and provide the benefit of safety and convenience.
* Paycards allow companies to go paperless, even if some of their employees do not have bank accounts.

Paycards can reduce payroll costs for employers and offer a convenient choice for employees. However, it is important to research a paycard program, understand its costs and plan for its impact on your employees before you decide to implement paycards. Learn more about Paycor’s employee payment options, including secure and easy-to-use paycards.

Sources: Forbes.com, State of California, Pittsburgh Post-Gazette