March 20, 2019
By Jeff Johnson, Senior Vice President/General Manager—Commercial Prepaid, Netspend
If you’re a typical U.S. employer, about 80 percent of your employees receive their wages through direct deposit to their chosen bank account or prepaid card.1 This is great for employers (more control over “paperless payroll,” and fewer paper checks to generate and distribute) and great for employees (87 percent of employees are highly satisfied with direct deposit).2 BUT—and this is a big but—that leaves you regularly issuing checks to about 20 percent of your workforce and, possibly, more paper checks for miscellaneous payroll events, like 1099 payments, overtime, out-of-cycle payments, bonuses and incentives.
It’s a fair bet that those payroll and payroll-related checks you’re issuing create an undue burden on your business in terms of cost, tracking and reporting, replacement and compliance. But, paper checks also burden your employees and contractors, who must wait for their checks to arrive in the mail, deposit them (or pay outrageous fees to have them cashed) and wait again for access to their funds.
Moving more of these payments to paperless payroll is now considered a best practice in payroll management because of the clear benefits to improve efficiency, increase transparency, standardize reporting and enhance compliance. While state laws may preclude every employer from achieving 100 percent electronic payroll, every employer can take reasonable steps to minimize the number of payroll and payroll-related checks it issues to achieve the following results.
- Making timely and compliant payments. Paperless payroll enables employers to respond quickly and proactively to unique or one-off events, while remaining fully compliant with federal and state wage and hour laws. Examples include paying out variable or one-time incentive bonuses, or assisting employees when the unthinkable happens. Take the recent hurricane devastation in Texas, Florida and Puerto Rico, for example. Employers with paperless payroll capabilities could advance pay and other benefits to employees who were unable to receive mail or be on-site to pick up their checks. For those who live paycheck to paycheck, and are represented disproportionately among those who receive their wages by paper check, the ability to access their money to buy necessities or leave impacted areas could make a significant difference in their quality of life or even their survival.
- Serving a dispersed workforce. Today, even small businesses are likely to have a geographically dispersed workforce, with employees resident in multiple states, each with its own wage and hour law requirements. Paperless payroll and overcomes the challenges of a multi-state (or even international) workforce, enabling pay to be credited on time across time zones, hassle-free and in compliance with applicable laws and regulations.
- Meeting the needs of unbanked and underserved employees. Although direct deposit of wages (and other employee payments) to a bank account is the gold standard, not everyone you need to pay qualifies for or wants a bank account. The paperless payroll option of payroll cards—which work like debit cards, except employees aren’t required to open bank accounts on their own—can reduce the number of paper checks you cut, while providing employees a safer option that enables them to participate in the economic mainstream. They can use their Card to pay bills, get cash, shop online and pay for in-store purchases—while benefitting from the protections provided to them by card networks. Payroll cards are a win in your move toward more paperless payroll and a win for employees, who can reduce the high cost and security issues associated with a cash-based lifestyle.
Payroll cards are also great as an option for temporary and younger employees who may not have considered or had access to a traditional banking option before.
- Responding to workplace and employee changes. Change is a constant in any business—employees are hired, go on leave, change locations and resign. And, your contractors are always in flux, too. These changes can wreak havoc with payroll processes, creating the need for out-of-cycle and varying amount payments, which—in a paper-based world—are time-consuming and fraught with potential for error. Making final payments paperless for employees or contractors, for example, simplifies the process, provides faster payment and enables you to avoid troublesome issues, such as stopping payment on already-issued checks.
- Improving audit, reporting and regulatory compliance. Paperless payroll is a boon for businesses’ audit, reporting and compliance functions, because all payment information is captured, with fewer paper checks to issue and reconcile, and fewer exception items. Importantly, reports can be created in any configuration to satisfy internal and external auditors and examiners. And, payment information can be viewed, tracked and managed in in real time; cards can be cancelled quickly if they’re lost/stolen; and funds can be easily replaced. And, there are no lost paper checks or physical delivery issues.
As you’re looking ahead to the New Year, consider making the move to a paperless payroll and payroll-related environment a top priority. A relatively modest upfront investment of time and resources can yield an ongoing benefit stream that makes your payroll management more efficient and transparent, and eases the reporting and compliance burden. And, these significant benefits don’t come at the expense of your employees; payroll and payroll-related electronification is a significant benefit to employees who, experience shows, readily choose the benefits of paperless access to their money over the burden of checks.
1. NACHA, “2015 Direct Deposit Survey,” April 2016