Payroll Cards Improve Direct Deposit Participation
It has been estimated that 50 percent to 60 percent of employees paid in the United States take part in a direct deposit service provided by their employers for payroll funds. This might be a growing trend as there are many benefits to employers and employees alike. Direct deposit involves a number of steps that culminates in the employee receiving wages electronically into their banking account, whether these are typically paid on an hourly basis or salaried.
For the staffing industry in particular, this trend poses a significant potential for savings as the volume of payroll checks for external staff is far greater than compared to internal staff. For instance, a staffing firm with 20 staff members may employ as many as 500 to 1,000 temporary employees per pay period.
The costs associated with paying this many employees is on par with much larger organizations outside of the staffing industry who, like you, strive to give superior service at a minimal cost. By giving direct deposit to your employees, you will experience dramatic savings as well as improve relations with your employees by providing this valuable benefit.
Background on the Market
Throughout the past eight to ten years, we have all had experiences with either pre-paid telephone cards, gift cards or the omnipresent debit cards. These are all convenient approaches to store money which can be utilized either by a specific individual or by the person possessing the card. More recently, the concept of payroll cards has been introduced as an alternative option to provide payroll funds to individuals.
These cards are a rather basic concept that may sound familiar. Load an employee’s payroll funds onto a card that can then either be withdrawn from an automated teller machine (ATM) or used to shop for goods and/or services up to the amount linked to the card, just like a debit card.
The card, once all funds have been used, may either be re-loaded with funds or discarded. Therefore, instead of an employee receiving a paycheck they receive payroll funds in an account via direct deposit plus they are able to retrieve their funds through their payroll card.
The issuance of payroll cards to employees is not completely new. The U.S. government, for instance, maintains several contracts among the list of four branches associated with military to produce an efficient, electronic method of distributing funds to service men and women. This is particularly helpful when those employees are overseas or aboard ships where access to banks is limited or non-existent. By giving an electronic method of distributing funds, this eliminates the need for currency, coins, vouchers, money orders, etc.
In addition to your convenience of use, payroll cards offer an added level of security. Typically, the cards use a multilayered integrated chip, which controls access to your funds. The chip is programmed with a person key or personal identification number (PIN). Funds can’t be distributed without the employment of the PIN, which just the cardholder knows.
From a much larger perspective, there are about 50 to 60 million people in the U.S. who do not have a traditional bank account. Many of these same individuals do not have credit cards either. We reside in a culture that revolves around transactions; transactions that are, by design, quick and convenient.
Individuals without a traditional bank account are unable to take part in a large amount of transactions such as general eCommerce, point-of-sale transactions, electronic payment to creditors, etc.
Basically, anything where cash is not either accepted or a viable option is simply not available to these individuals. More importantly, people who do not possess a banking account are unable to participate in traditional direct deposit offerings.
Based on the Federal Reserve Bank of the latest York, there are approximately 20 million users of those types of cards and that number is expected to improve to more that 49 million by 2008. Obviously, the trend towards a greater level of acceptance is growing.
In 2003, these forms of cards were used in order to make $42 billion in transactions. By 2006, more than $72 billion worth of transactions are anticipated. Experts have indicated that the industry is within the introductory stage of its life cycle, which shows that there is still substantial growth potential in the near future.
Problems and Solutions
Currently, you might be offering a direct deposit solution for your employees. Direct deposit is a method of payment to your employees which electronically credits their checking or savings account or maybe both. This is certainly a service that you might provide as a benefit to your employees who have been with you for a defined time period. Even though it may possibly be a benefit to your employees, it also provides a tremendous benefit to your organization.
The benefits of such an offering include decreased processing time for payroll, increased security due to the fact funds go directly into a free account, reduced fees for stop payment of checks, no lost checks, decreased employee payroll issues, etc. Based on the American Payroll Association (APA), these savings equate to approximately $2.00 per contingent employee per pay period.
Many firms have the aspire to move towards a greater level of employee participation in direct deposit since the efficiencies are proven and dramatic. The reasons behind both employee and employer to find value are obvious. But sometimes just encouraging the idea with your employees is in fact not good enough. In many cases, it needs to be a policy of education and dedication to increase participation.
However, this will be assuming that all of the employees can participate in direct deposit. That may not be the actual situation; take those employees that do not have a checking or savings account, regardless of education or policy, these employees cannot participate.