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Paycard best practices: How to get it right the first time

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Employers’ stumbles over implementing paycard programs have received too much publicity and push-back from the federal and state governments recently. It doesn’t have to be that way.

Jill Goebel, senior business leader at Visa, moderated a panel discussion on paycard best practices at the American Payroll Association’s Annual Congress this spring. Here are highlights.

Know what you’re selling. There are two types of paycards:

  • So-called PIN-based cards, which limit employees to one free transaction per pay period and can only be used at ATMs
  • Swipe-based paycards that function more like traditional debit cards, which can be used anywhere.

Either card can be paired with convenience checks, so employees can cash out to the penny (a requirement of all state laws). The trend, according to one panelist, is moving away from PIN-based cards. Even better: You can split employees’ pay between direct deposit and paycards, another panelist pointed out.

Refining your sales pitch. Under federal law and most state laws, you can’t require employees to be paid by paycard. Nevertheless, good communication can steer employees toward paycards. Your message should focus on the benefits of having a card—the ability to swipe at a supermarket, free rewards from the vendor and—in one extreme case—the ability of a divorcing employee to keep private some of her pay by splitting pay between direct deposit and a paycard.

Key: How you present the choices to employees. One panelist pointed out, for example, that you can tell employees that they have a choice of A (paycards), B (direct deposit) or C (paper checks). There is no need to stress paper checks.

Back up your communication with a pay authorization form. This form alerts employees to how they’ll be paid and, importantly, discusses the fee schedule for paycards. Fees can apply when an em­­ployee uses a PIN-based card more than once; account maintenance fees can apply to swipe-based cards (e.g., inactivity fees will bleed a card down to $0).

Fee schedules are negotiable with the vendor. One panelist noted that you can put out a request for proposal to several vendors for their fee schedules.

It’s critical that employees understand the fees, and you may spend a lot of time training employees in this area. Idea: Ask your vendor to supply you with reports showing the fees employees have paid (the report won’t list employees by name). If you see many fee charges, you’ll know you need to ramp up your communication.

Ongoing due diligence. Everyone agreed that you should dump a vendor who has crummy customer service. Query employees about their experiences with their cards: Are their calls being answered? How long does it take to resolve problems? One panelist suggested, if possible, visiting the vendor’s call center to listen in on customer interactions.

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