When the nation’s largest private employer announces it’s discontinuing employee paychecks in favor of a 100 percent paperless payroll system — in part through the use of payroll cards, or pay cards — it’s time to sit up and take notice.
According to Wal-Mart spokeswoman Michelle Bradford, pay cards will be used to pay approximately about half of its 1.4 million U.S. employees who choose not to use direct deposit, which Wal-Mart will continue to offer.
Making the transition from paper to plastic payroll raises a slew of questions and concerns, much as direct deposit did when it was introduced in the 1980s. But Wal-Mart’s Bradford insists, “The program will make life easier for our associates and also have a positive influence on society, from a sustainability standpoint.” Wal-Mart expects to save more than 250,000 pounds of paper per year — and thereby reduce its payroll costs significantly with its new pay card debit card program. (See An employee guide to pay cards).
Wal-Mart is far from the first employer to pay its employees via pay cards, but it’s the most visible. What are pay cards? We turned to payroll card experts, users and employers to find out.
Pay cards by the numbers
In 2008, $17.22 billion was loaded onto pay cards in the United States — up 26 percent from $13.64 billion in 2007, according to Brent Watters, senior analyst for Mercator Advisory Group in Maynard, Mass.
“It’s definitely grown, and we can attribute a lot of this growth to the current economy, which has definitely positively impacted this segment, as companies are looking for ways to cut costs, reduce the amount of paper used in daily operations — so that means moving from a paper to a plastic method for payment,” says Watters.
What are pay cards?
According to the American Payroll Association, pay cards are payroll debit cards that operate much like a bank account-affiliated debit card, complete with a PIN. Employees can usually use paycards for ATM cash withdrawals and point-of-sale (POS) or online purchases, though the exact applications vary by employer and pay card vendor.
The primary difference between a traditional bank debit card and a pay card is the employer creates the “banking relationship” with a financial institution — rather than the employee — and electronically reloads the card with the employee’s wages each payday.
Pay card vendors, including First Data (with whom Wal-Mart is partnered), Payoneer, ADP and Ceridian, offer a variety of pay card programs and products, including branded and unbranded pay cards. “Branded” cards are those that include the MasterCard, Visa, Discover or similar logo and can be used with a PIN or as a “signature-based” card with which cardholders sign for purchases as they would with a credit card. The Wal-Mart pay card is a MasterCard.
“Unbranded” cards are debit cards that may only be used at ATMs or POS terminals by using a PIN. These cards, which are not affiliated with a credit card network, are typically tied into the Cirrus, Star, PULSE and Plus POS systems, according to the American Payroll Association.
How pay cards work
In addition to Wal-Mart, numerous other public and private employers, including Sears, CBS, Guru.com, Kelly Services and BJC HealthCare, have adopted pay card programs.
“Wal-Mart is raising the bar for employers everywhere by providing associates who don’t have bank accounts with immediate access to funds on payday, without fee or discount, and access to cash at thousands of locations across the country,” says Ed Labry, president of retail and alliance services with First Data.
The pay card programs offered by employers — including Wal-Mart — can come with a list of fees, which vary by employer, vendor and pay card program.
Danville, Va., self-employed ghostwriter and graphic artist Becky Blanton, 53, has used pay cards for more than five years. “There are fees for transactions on the card — either $1 to $1.50 per transaction or $10 per month flat rate for unlimited transactions and a $1 fee at ATMs. Every company varies, but the fees work out to be about what a bank would charge for a debit card. There are fees ($.50) for checking your balance via phone, but it’s free to text a balance request or to go online to manage your account,” says Blanton.
Wal-Mart employees pay no account maintenance fees and can access their balance information for free online, via text message or voice mail. All employees can access 100 percent of their pay at any time at any Wal-Mart or Sam’s Club cash register, says Bradford.
According to Glen Turpin, First Data’s director of communications, Wal-Mart employees will also have access to free Money Network checks, which can be used to pay bills or withdraw cash at a Wal-Mart cash register for free. “Money Network’s payroll distribution service offers the convenience of debit card and check ownership without having a bank account, ” says Turpin.
Wal-Mart’s pay card program also allows each employee one free ATM transaction per pay period. Each subsequent pay card ATM transaction costs $2. Wal-Mart and its pay card provider declined to disclose any additional fees. Prepaid and debit cards typically are fraught with fees, so it pays to familiarize yourself with all fees involved and reading the fine print carefully.
“We’ve succeeded in making it as close to fee-free as possible,” says Bradford.
The convenience factor
Pay cards are convenient, says Blanton. “There’s no hassle getting your paycheck cashed. Your money is direct-deposited and available immediately,” she says.
Early in 2009, a strategic partnership between prepaid and pay card vendor, Payoneer, and Guru.com, a marketplace for freelancers, was announced. “Pay cards are a nice fit for the freelance lifestyle. A part of the allure of working for yourself is the flexibility to work when, where and how much you would like,” says Guru.com spokeswoman Kristen Sabol. “Often, this means that freelancers will take work with them as they travel. With a pay card, you can easily collect your paycheck anywhere in the world without missing a beat.”
Payoneer spokeswoman Mary Kae Marinac says more than 85 percent of Guru.com pay card holders are located outside the United States. “For them, receiving payment from a U.S. company is a time-consuming and costly proposition because checks get lost or stolen. Wire transfers are costly ($10-$25 each) and require you physically get yourself to a bank during its open business hours,” she says.
“I took mine to England with me this summer,” says Blanton. “I used it at the airport and with exchange services for money and had no problems.”
The growing pay card trend
Mercator predicts continued growth in the pay card industry. “We’re still kind of in this recessionary period, and companies are still struggling, looking to drill down on that bottom line and reduce costs as much as possible. So, we expect to see again, for 2009, a significant increase in the adoption of payroll cards,” says Watters. “Also, the networks — Visa, MasterCard and Discover — are out there looking for ways to drive adoption. They understand this is happening, and they’re looking to enhance these cards with advanced features.”
The bottom line? “By utilizing payroll cards, depending on the size of the operation, a significant reduction in cost can be realized in that transition from paper to plastic,” says Watters.
See related: An employee guide to pay cards, 9 ways to budget with a prepaid card, Debit versus credit: Which offers more protection?, Consumer rights for credit and debit cards, Wal-Mart cuts its prepaid MoneyCard fees, Study: Prepaid cards full of hidden dangers, Prepaid card use rising as credit cards stutter, FDIC: Prepaid cards qualify for deposit insurance