How a Pay Card Program Can Reduce Costs and Improve Efficiencies

Cost savings, low maintenance, and employee satisfaction are some of the reasons why more multi-unit franchise businesses are turning to pay cards.

By Albert Grant
Successful franchise business owners know that an important part of being a good employer is making sure employees are paid on time and in a manner that is as convenient as possible for them to access their pay. As labor is a company’s greatest expense, finding a way to reduce costs and improve the efficiency of pay distribution is a high priority for all businesses.
Until recently, most businesses relied almost exclusively on paper checks or direct payroll deposit for pay distribution. While direct deposit is a low cost solution for employers and convenient for employees with bank accounts, it’s not an option for unbanked employees. As a result, many franchise businesses still use paper checks, which cost more and are inconvenient for both employers and employees.
According to the Consumer Federation of America, only 25 percent of low income workers use direct deposit because banks may charge a fee for not maintaining a minimum balance. These unbanked or underbanked workers rely on check cashers or other financial service providers who charge high check-cashing fees.
Franchise business owners looking to lower payroll costs and improve employee satisfaction now find that pay cards can help them meet their business objectives and provide a valuable employee benefit.

Cost Savings and Improved Efficiency for Your Business

Pay cards allow employers to deposit employees' net wages to reloadable prepaid cards that provide employees with fast, easy and low cost access to their funds. They reduce the banking expenses associated with clearing checks, as well as the costs associated with processing, printing and distribution. 
Additional savings are realized by eliminating the time-consuming inefficiencies associated with paper checks. Payroll departments don’t need to be tied up with exception requests, tracking down and replacing stolen or lost checks, or spending hours stuffing pay envelopes. 
Also, store managers don’t have to deal with payday disruptions typically associated with handing out checks to employees on-site. They don’t need to stop what they’re doing when employees who have the day off come in for their checks, or work around employees who want to leave at potentially inconvenient times to cash their checks. 
Pay cards can even solve tricky logistical issues. Delivering paper paychecks to employees in a city or region hit by floods or a blizzard is difficult and sometimes impossible; pay cards allow multi-unit franchise businesses to pay their employees in a timely manner, even during a disaster or storm. Pay cards ensure that your employees are paid no matter what, and that is especially helpful if they are faced with a natural disaster or related calamity. 
Pay cards also minimize risk, eliminate exposure to check fraud, enhance record keeping efficiency and, by eliminating paper checks, your business is more environmentally responsible.
A Secure, Flexible and Reliable Solution for Your Employees
Pay cards offer your employees a low cost, convenient, secure way to get paid. They can use their pay card anywhere debit cards are accepted. They can shop, get cash or pay their bills. And waiting in long lines to cash or deposit their checks is a thing of the past. Cardholders also have a record of all transactions, so they will have proof of payment of all purchases.
Having immediate access to their wages on payday is another benefit employees appreciate. Plus, carrying a pay card is safer than walking around with cash. Lost cash is gone forever, but lost or stolen cards, as well as any funds fraudulently withdrawn, are easily replaced. Cardholders also don’t have to deal with the hassle of lost or stolen checks.
Unbanked and underbanked employees appreciate not having to pay high check cashing fees, and they enjoy greater purchasing power, including online.

What to Look for in a Pay Card Provider

A pay card provider can be either a financial institution or a provider that works with a financial institution that issues the pay cards and hold the funds. When evaluating providers, you
should consider:
  • Overall cost savings for your business
  • Expertise in compliance with state regulations
  • Convenience and affordability for employees
  • PCI-DSS compliance of the program offered
  • Seamless payroll integration potential
  • Speed of implementation
  • Timing of when funds are loaded/available on cards
  • Whether you’d have a single point of contact throughout the process
  • Beneficial program features (e.g., Web/digital access)
  •  Fees
  • Training support
  • Client and customer support
  • Fraud protection proficiency
An established pay card provider can implement a turnkey pay card program that takes care of the hard work, so that you can focus on running and building your business.
Keep in mind that products built on a proprietary platform, as opposed to those that rely on third-party vendors, eliminate unnecessary costs, allow for fast implementation and reduced risk.

Regulatory Compliance: Employer and Pay Card Provider Responsibilities

Your pay card provider is required to comply with card network (Visa, MasterCard, Discover) operating rules, the Electronic Funds Transfer Act (Regulation E) requirements for accounts (e.g., unauthorized transactions, error resolution, etc.), rules governing employee access to account balance and transaction histories, data security and escheatment laws (tracking abandoned accounts) and anti-money laundering laws.
Employers are responsible for complying with state wage and hour laws, such as calculating payment of wages and providing employees with pay “advices” (pay stubs). An experienced pay card provider can provide you with electronic pay stubs and W-2 tax forms.
Some states require employee consent for switching from paper to electronic pay advices. The American Payroll Association provides up-to-date compliance and regulatory guidelines for all states. Federal law, however, requires employee consent for electronic W-2s.
Business owners must also comply with Regulation E, which requires disclosure of all fees that may result from an employee's use of a pay card. It also limits cardholder losses when pay cards are lost or stolen. Regulation E also prohibits employers from requiring their employees to establish an account at specific financial institutions in order to receive their wages. 
Navigating the ever-changing federal and state laws that govern payroll card programs can be challenging even under the best of circumstances, but an experienced provider can help you stay up to speed and make sure your business remains compliant.

Compliance and Fraud Protection Expertise 

While pay cards don’t possess the same security risks associated with lost or stolen paper checks, they are not immune to fraud. To mitigate this risk, make sure your provider uses real-time fraud detection tools. These intuitive programs help identify fraudulent transactions based on a person’s past card usage and help limit fraud loss for businesses and their employee cardholders. 
With the right pay card provider, your business can save money, boost employee satisfaction and increase the operating efficiency of your business across the board. 
Albert Grant is Vice President of FSV Payment Systems.