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E-pay progress: Make the move to pay cards

by on
in Small Business Tax Deduction Strategies

Is your direct deposit campaign a little long in the tooth? Now may be the best time to update your compensation sys­tem by adding pay cards to the mix.

Pay cards are reloadable, prepaid bank cards—not credit cards. Each pay period, the employee’s pay is automatically loaded onto the card and available to the employee on payday.

For many workers, pay cards double the convenience of direct deposit. For employers, pay cards help keep employees focused on work, not how they’re going to get their hands on their pay.

But before you call your payroll provider or bank to set up a pay card option, understand that there are legal and practical pitfalls you must avoid. (See box below.)

Pay via plastic

Pay cards are still a relatively new payment medium. Direct deposit made life easier for employees, eliminating the Friday lunchtime run to the bank to cash paychecks. Pay cards take it a step further by marrying convenient deposits with ease of spending.

Pay card features vary among vendors, but most pay cards:

  • Allow employees to use their cards to make purchases anywhere they could use a credit or debit card
  • Enable employee access to cash from ATMs and terminals at retail outlets
  • Are linked to no-frills bank accounts to which employers add pay and from which employees may withdraw funds by using their cards
  • Provide courtesy checking accounts that employees can use to facilitate online bill paying. (Employees are also generally free to use pay cards to make online purchases.)

Typically, employers set up pay card arrangements through a payroll vendor or the bank from which payroll funds are disbursed. However, employees can buy their own cards and work with you to set up direct deposit to their accounts.

Legal requirements for pay cards

Most states prohibit employers from mandating that employees receive their pay electronically—the banking basis of pay cards. (Similarly, only a few states let employers mandate direct deposit.)

Many states also forbid employers and banks from charging a fee if employees decide to cash out all their pay with one transaction.

Learn the applicable law in states where you operate, at www.theHRSpecialist.com/pay_card_laws. Note that you must comply with the law in each state where you have employees.

Marketing to overcome resistance

As long as state laws give employees the option of paper checks, there will always be a few employees who prefer them. Plus, employees who fear identity theft may prefer paper checks. It’s still worth your while to make the push for direct deposit and pay cards, simply because issuing paper checks costs employers money.

The National Automated Clearing House Association—a bankers’ association commonly called NACHA: The Electronic Payments Association—has a web site full of ideas, marketing materials and checklists you can use to reach these employees. See www.electronicpayments.org and click on the “Direct Deposit” tab for more information.

Advice: Get the ball rolling by actively steering new hires toward direct deposit and pay cards. Include direct deposit or pay card enrollment forms as part of their routine paperwork.

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