Getting paid can sometimes be a hassle for employees, especially if they are one of the roughly 25 percent of Americans who are either unbanked or underbanked, according to the Federal Deposit Insurance Corporation. Luckily, a plan for managing unbanked or underbanked payroll so both your employees and your organization avoid or reduce unnecessary costs can help.
What It Means to Be Unbanked or Underbanked
When someone is unbanked, they do not have a relationship with a bank or other financial institution. Someone who is underbanked has a bank account, but may still regularly use nonbank institutions, like check-cashing services. "For the unbanked, there are obvious issues with direct deposit and checks," says Gary Lott, Division Vice President and General Manager for wage payments at ADP. "For starters, these workers can't accept direct deposit without a bank account. And while they can cash checks, that method is often associated with check-cashing fees that can quickly add up. Payroll cards provide a safer and more economical way for unbanked employees to receive their pay."
Payroll Cards: Cost and Convenience
This is where payroll cards come in, which can offer an easy payroll alternative. Any employee interested in the program would receive a payroll card they can activate to begin receiving their pay electronically and use for everyday purchases and bill payment. Generally speaking, on payday, employers who offer payroll cards transfer money directly to the employee's payroll card account the same way they would for employees with bank accounts through direct deposit. It costs much less to pay employees electronically through a payroll card versus a paper check.
Considerations for Payroll
While payroll cards can seem like the perfect solution for your unbanked or underbanked employees, payroll cards should never be the only option and the choice is ultimately up to the employee. According to Regulation E, an employer cannot require the employee to use a paycard account as a condition of employment. Additionally, many states require organizations to provide their employees with direct deposit and/or paper checks as an additional pay option.
Before signing up for a payroll card program, you should also closely review the federal and state specific requirements that would apply to your workforce. Provide your employees the required notices and disclosures when rolling out the payroll program, capture the proper consents and ensure your employees activate their new payroll card accounts before loading pay.
By considering this information, you can set up a successful payroll for unbanked employees.
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