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Digital Payroll Delivery: Benefits and Best Practices for SMBs

BY: Nigel Andre, GM of Money Network, First Data | 06/17/19

Reduction in cost, operational efficiency, and most importantly a better employee experience. The value of electronic payroll distribution is recognized by employers large and small, but all too often it is the small- to medium-sized business (SMB) owner that is both slow to adopt, and not reaping the benefits of what should be a simple solution to one of their core tasks—getting people paid.

The distribution and management of paper paychecks is costly, especially for a small business. When employees are paid with paper checks there are invariably problems that require administrative resources to sort out. For instance, paper checks can easily be lost or stolen, and occasionally, an employee will fail to pick them up. When an employee doesn’t pick them up—even if that paycheck is for a very small amount—employers are required to fill out an escheatment that transfers unclaimed funds to the state. The result? A headache, an administrative nightmare, and a drain on small business owners’ time. And time, for the coffee shop owner or corner store, is often indispensable for small business owners; in fact 38% of small business owners cited their “time” as the most valuable asset to their business.1

While most small businesses today offer their employees Direct Deposit as an option, there are always cases in which some employees do not opt-in. In some cases, they simply prefer paper checks, but in many cases—particularly in businesses that rely on service workers, hourly workers or transient workers—many of these employees do not even have a bank account or any formal banking relationship.

Payroll Debit Cards

Payroll Debit Cards are a widely-available alternative to company-issued paper paychecks that work even for employees who do not have bank accounts. The payroll debit card works just like a bank debit card. Once implemented, paying employees becomes as simple as issuing a Direct Deposit, because each Payroll Debit Card has a routing and account number that can easily be added to the employer’s NACHA file.

With the right Payroll Delivery Service, small business owners can achieve 100% electronic payment of wages, simplify and optimize your payroll processes, and reduce administration costs*.

*A traditional paper payroll check must also be offered as a wage payment option in some states.

A Win-Win for SMBs and Employees:  Big Benefits of Digital Payroll Delivery

  1. Savings—Reductions in payroll-administration costs related to printing and distributing paper checks result on the biggest savings, along with managing issues related to lost, stolen, misrouted, and uncashed checks. On average, employee expenses for using a payroll card equates to $7 per month per employee; versus $23 per month for basic checking.2 That reduction, roughly $16 per month, equates to nearly $200 per year per employee. That can mean huge savings for the growing staff of a small business.
  2. Compliance—Choosing a program with a check and optional payroll card gives ability to achieve 100% electronic pay. Also, looking for a program that monitors regulatory changes impacting wage payments is important.
  3. Product Innovation—Digital payroll delivery programs often offer cardholders a mobile app, electronic tip delivery, reload capabilities (cash, tax refunds, additional jobs, etc.) and no cost features, like surcharge- free ATM access, send money to a friend, and more. Employees love new features, and delivering them can set employers apart from the competition.
  4. Employee Safety and Convenience—Employees don’t have to worry about losing cash that they are carrying around, nor do they ever have to wonder if the paycheck is actually going to show up at their place of work on payday. Additionally, employees will not have to deal with the inconvenience of cashing or depositing their paycheck. Payroll debit cards are faster, easier, and safer than paper checks—and the balances are FDIC-insured.

By the Numbers: Why Employees Need Options for Receiving Pay

  • 19% of U.S. households that were underbanked in 2017 – 24.2 million3
  • Americans incur $14 billion in overdraft fees annually4
  • 78% Americans living paycheck-to-paycheck5
  • $40,00 Fees and interest American’s spend with payday lenders and for check cashing services over the course of a working life4
  • 13 million Americans without bank accounts that use check cashing services6

Not only do small business employees need additional options for getting their hard earned cash, but in many cases they are starting to ask for it too—and employers that can differentiate themselves with a simple digital payroll delivery solution get leg up on their competition. Statistics show that employees view digital payroll as a benefit their employer is providing, and offering a payroll program that includes multiple features like a card, check, or mobile payroll app can set SMBs apart as employers of choice. Here are a few stats from Visa’s 2017 Payroll Card survey study to back that up:

  • 82% of employees say working for a company/business that offers payroll card is a major benefit
  • 76% of employees like an employer more for offering a payroll card
  • 73% of employees would look for employer that offers payroll card, when looking for next job
  • 88% of employees say payroll cards save time vs having to cash a check

Employee Benefits

We’ve identified that employees’ want digital payroll delivery, and in many cases need a payroll debit card to enhance their financial freedom. But what exactly are the benefits flowing through to the employee? And how are they using them to get more from their money on a day-to-day basis?

Employees are able to get money deposited in near real-time. It’s no secret that a digital payment occurs much quicker than cutting a check, driving to the bank, and waiting for your payroll deposit to clear. With faster access to their funds, employees now have early access to their wages, and more time with their money.

Employees can also manage their money differently by directing all, or a portion of their wages into a digital payroll account—an extended benefit of digital payroll cards. And through their digital payroll account, participating employees will avoid those pesky overdraft fees associated with a traditional bank account. Ducking overdraft fees isn’t the only cost savings either, digital payroll services can save employees between $150 and $200 per year that they may spend by relying on a check-cashing service or through a traditional checking account2. More savings, less fees, and quicker access to your money? We can all agree that all three are universally well-received.

Lastly, payroll debit cards bring more protection. Participating employees have immediate access to their FDIC-insured funds, zero-liability protection for unauthorized Card purchases, and some payroll card providers enable 24/7 customer service to cardholders if an issue arises.

Picking the Right Digital Payroll Delivery Provider

Picking the right provider is a critical success factor. Knowledge is power, and knowledge begins by asking the right questions. There are a range of offerings available on the market, and not all are created equal. Notable differences between digital payroll delivery vendors include:

  • Structural Differences—Fee structures, fraud/theft limits placed on accounts, the scope and breadth of the check-cashing network, availability of a convenient check option that meets your state’s pay compliance regulations, and the experience of a proven track record are all important considerations. Each program is different, and your best fit depends on your business.
  • Legal and Regulatory Differences—Premier providers recognize the critical importance that legal and regulatory landscape plays in wage distribution, take a thoughtful and serious approach to it, and provide employers with the roadmap to compliant, 100 percent electronic payroll.

No matter the business type it’s clear that digital payroll delivery offers exceptional benefits to employers and employees alike. Simple and easy, saving time and cutting costs, and providing your employees what they need when they need it most. Anything else just doesn’t make sense.

Learn more about digital payroll delivery at www.firstdata.com.


 

 

1 https://localfirstbank.com/article/how-do-small-business-owners-spend-their-time-infographic

2 M. Flores, “Analysis of Network Branded Pay Cards: Comparative Analysis of Pay Cards to other Payment Options.” Bretton Woods, Inc. 2011.

3 FDIC, National Survey of Unbanked and Underbanked Households, 2017, https://www.fdic.gov/householdsurvey 

4Chicago Sun Times, "End cycle of debt by paying workers in real time," 10/22/2018.

5CareerBuilder, Press Release; 2017, http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-
Workers-According-to-New-CareerBuilder-Survey
 

6Chicago Sun Times, “End cycle of debt by paying workers in real time,” 10/22/2018