Smart Business spoke to Mark Strippy, Executive Director, Payroll Services at Heartland Payment Systems, about how employers can achieve cost savings through electronic payment options.

If you’re like a growing number of businesses, you may find yourself in an all-too-familiar situation. You want to streamline the payroll process and increase your bottom line by participating in an electronic payments program, but not everyone in your company has a bank account or is eligible for direct deposit and so you continue to pay the costs associated with check printing, processing and in some instances, delivery. You’re not alone. Right now there are approximately 10 million households in the United States that don’t have a bank account — we call them the unbanked.

But there is a solution. Paycards offer a viable payment option that allows employers to electronically pay unbanked workers much like they would pay those participating in direct deposit. And, employers can achieve similar cost savings.

How it works

The structure of paycards is actually very simple. An employer establishes a banking relationship with a financial institution. Employers can set up individual accounts for each employee, or a single aggregate account with sub-accounts for each employee. Funds are deposited into the account each pay period. Employees are given a paycard, which allows them to access their wages using an ATM or by using the cash-back feature available at many point-of-sale terminals throughout the United States. Depending on the type of paycard, purchases may also be made using a PIN or signature.

Types of paycards

Different types of paycards can be set up for your employees. The first type is branded cards, which may also be referred to as “signature” cards because they can be used with a PIN or a signature. These cards typically have the Visa/MasterCard branded logo on them and are issued by their respective partner banks. As such, they follow the bank’s process and fee schedule.

Another type of paycard is the vendor branded card. These cards are issued under specific vendor logos and are subject to the vendor’s processes and fee schedules. Unlike branded cards, all transactions on these cards are PIN verified.

The far-reaching benefits of paycards

In addition to the obvious “green” benefits associated with switching over to a completely electronic payroll system, there are also many more advantages to paycards that are enjoyed by companies and employees alike.

Benefits to employers

  • Offers a cost-effective way to expand electronic pay to all employees, including unbanked workers

  • Reduces costs associated with check printing, processing, delivery, account reconciliation and stop payment fees
  • Increases the security and reliability of distributing wages even in the event of an office closure or natural disaster
  • Ensures compliance with legal requirements regarding termination pay
  • Uses standard ACH, so the hassles and costs associated with changing systems are not necessary
  • Meets obligation to pay workers wages “without discount” as required many state wage and hour laws

Benefits to employees

  • Requires no credit checks or bank accounts to participate
  • Offers peace of mind knowing wages are safely, promptly and accurately deposited onto paycard
  • Eliminates any check cashing, bank service charge or money order fees
  • Allows cardholders to make purchases, pay bills by phone, online or mail or use cards to make withdrawals at ATMs 24/7
  • Eliminates waiting for paychecks to arrive by mail, standing in long lines at the bank and special trips to pick up checks

How to start a paycard program at your company

  1. Choose a paycard program provider/vendor
  2. Choose the type of paycard you will offer
  3. Decide whether you want an individual account for each employee or an aggregate account with sub-accounts for each employee
  4. Put a plan in place for how and when it will roll out and how you will enroll employees. Make sure you have written policies and procedures and designated roles and responsibilities
  5. Get your employees excited and onboard by developing brochures, posters, etc.
  6. Launch your new paycard program

About Heartland Payment Systems

Heartland Payment Systems, Inc. (NYSE: HPY), the fifth largest payments processor in the United States, delivers credit/debit/prepaid card processing, gift marketing and loyalty programs, payroll and related business solutions to more than 250,000 business locations nationwide. A FORTUNE 1000 company, Heartland is the founding supporter of The Merchant Bill of Rights, a public advocacy initiative that educates merchants about fair credit and debit card processing practices. The company is also a leader in the development of end-to-end encryption technology designed to protect cardholder data, rendering it useless to cybercriminals. For more detailed information, visit HeartlandPaymentSystems.com or follow the company on Twitter @HeartlandHPY and Facebook at facebook.com/HeartlandHPY.

Insights Banking & Finance is brought to you by Heartland Payment Systems

Published in Cleveland