If your company has a lot of employees who don’t have bank accounts or who work on the road or in remote locations, a payroll card system could save your business money in processing costs while making it easier for employees to access their wages.
Direct deposits are less expensive, but are of little use to employees without bank accounts. By one estimate, some 30 million American consumers (representing one quarter of households) do not have bank accounts. These employees have limited choices for accessing their wages.
The costs vary, but payroll cards are often less expensive than the fees for processing and issuing paper checks. They also eliminate the need to deal with lost or stolen checks, according to the U.S. Office of the Comptroller of the Currency.
With a payroll card, you load an employee’s net pay onto a plastic card that resembles a debit card. There’s no paper involved. Employees can then withdraw money at ATMs or stores with credit card hookups.The cards provide several other advantages to employees without bank accounts, including that they:
The downside is that payroll cards may not receive full protection under the Electronic Funds Transfer Act (EFTA), unless they are linked to individual accounts established by the employer.
The EFTA gives debit card holders the right to have funds returned to their accounts within 10 days when a verifiable theft or bank error has occurred. They also have the right to limit the amount of loss from stolen cards.
Among other things, the EFTA asks issuers to provide periodic account statements to track account activity, and to provide a system to resolve errors and steps to resolve unauthorized transactions in the case of stolen or lost cards.
For accounts not protected by the EFTA, you can negotiate to have a separate account set up for each card, or contract with the payroll card issuer for the same protections consumers have under the EFTA.
How much can you really save by adopting the use of payroll cards? Obviously, the answer depends on the size of your company and other variables.
Here’s an example: Several years ago, the Kansas state legislature passed a law allowing companies to pay employees either by direct deposit or with payroll cards, in an effort to achieve paperless payroll.
One not-for-profit agency in Wichita, Kansas told a local newspaper the change would save them an estimated $6,500 each year, as well as a great deal of administrative time.
Information courtesy of © 2017, Powered by Thomson Reuters Checkpoint
We provide the information in this e-newsletter for general guidance only. This does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.