Payroll Cards Pay Off for Employers and Employees

Serving the needs of unbanked and underbanked employees

One challenge often faced by both employers and employees is providing reasonable pay options for those workers who are either unbanked or underbanked and thus cannot benefit from direct deposits. Current estimates indicate that roughly 26.9% of the current US population (approximately 33.5 million households) are unbanked or underbanked.¹ The term “unbanked” refers to individuals who do not have any service from a financial institutions usually by choice or because the individual may live paycheck to paycheck and not be able to maintain the required minimum balance for an account. Those categorized as underbanked either live in more rural areas with insufficient access to banking institutions or have trouble meeting underwriting criteria to qualify for bank accounts. Both scenarios can be costly for employers and employees with fees for check-cashing, having cashier’s checks issued to make household payments and/or cancellation and reprints of lost checks. Paper checks also carry higher risks for theft of the checks themselves and/or stolen cash once an employee cashes his/her check.

Payroll Cards are a solution that have been gaining popularity with employers as a means to serve their employees that currently lack service from financial institutions. These cards offer greater convenience and security than paper paychecks and can help workers avoid steep and sometimes predatory fees at payday loan retailers that often take advantage of workers needing immediate access their own hard-earned money. For those households already living paycheck-to-paycheck, those fees can have a detrimental effect and eat into an employee’s ability to provide for basic household needs. Payroll cards can be a great option to give employees instant access to their pay including the ability to make point-of-sale transactions, online bill payments and complete purchases at brick-and-mortar stores or online retailers. According to NACHA, a non-profit that oversees ACH payments, employers can also benefit and typically see a savings of $2.87-$3.15 per payment using an electronic pay method vs. paper.

Build enrollment and ensure compliance

Employers must follow strict guidelines in order to stay in compliance with both federal and state laws to protect vulnerable employees and should promote the benefits for your workforce to maximize enrollment efforts. Employers in New Hampshire must follow a specific protocol when they are looking to roll out a payroll card option to their workforce including the need for them to opt-in (you cannot automatically enroll employees), but you can also use the opportunity to set an enrollment goal and encourage more employees to participate.

To launch a campaign in New Hampshire to encourage all of your employees to elect to receive their pay electronically, we suggest:

Hold an informative session with all employees on the benefit of opting to receive their pay via direct deposit and provide all the necessary print materials and forms.
Discuss and provide marketing materials regarding your selected payroll card provider. This MUST include the associated fee schedule for use of the payroll card.
Set a target due date for all direct deposit or payroll card election forms to be filled out and submitted.
Follow up with a check insert campaign a week before your elected due date.

Once in place, employers also need to ensure they follow the letter of the law with regard to permitting to employees to access their money. It is imperative that you ensure you payroll card provider meets the following requirements in order for your company to stay in compliance with New Hampshire labor laws:

The employee must be able to visit a financial institution that is convenient to your place of employment to cash their check/access all their funds.
Employees should not incur any fees if they wish to access their entire paycheck. Reimbursement of fees to access their pay after the fact is not acceptable under New Hampshire law, thus employers should ensure employees have a way to circumvent incurring the fees or should make arrangements with the payroll card provider to have those fees passed directly to the employer.
Employees must be able to opt-out of the payroll card service at anytime and receive their entire balance without incurring a penalty or fee.