Alternative payment methods, such as paycards, are a growing factor in the payroll administration landscape.
The case for being proactive about offering alternative payment methods (APMs) to your organization has never been stronger. To meet the expectations of younger workers, independent contractors and employees who simply want their money faster, smart organizations will want to stay ahead of the curve and offer various forms of payment to their workforce.
But how does this fit into your overall payroll administration efforts? What are the important issues related to compliance? And how can you roll out APMs in a way that will satisfy your workforce?
If you're trying to decide how APMs will work for your organization, here are some key considerations to keep in mind.
APMs Are Integral to the Payroll Strategy
For the first time in history, there are five generations in the workforce at the same time, and each segment's needs vary, so businesses need to offer different payment methods to appeal to a range of employees. For example, Gen Z will likely be attracted to paycard methods, whereas baby boomers may want other pay options, such as direct deposit or paper checks.
Whatever the case may be, you need to ensure that your business is proactive in offering APMs. By providing a good source of tools outside the normal solution, you can appeal to a broader audience and also retain alternative options of paying your employees if a catastrophic event hinders the usual process. During recent hurricanes, for example, employees who only had access to a paper check had difficulty getting paid due to disruptions in transportation and other factors. Getting money into people's hands quickly and ensuring access to all their accrued wages are critical steps in these kinds of situations.
You should consider compliance when you look for a paycard vendor. Due diligence is necessary.
In the past, APMs were targeted to the unbanked, generally due to divorce or bankruptcy — but that is no longer the case. Now, employees (especially Gen Z and millennials) are choosing paycards over a traditional banking relationship in many instances. Offering flexibility around payments can be a significant factor in an organization's capacity to attract and retain these younger workers in today's highly competitive job market.
Businesses should also make sure their payroll strategies encompass more than just the W2 population. This year, an estimated 40% of workers will be categorized as 1099 employees or self-employed independent contractors, and supplying APMs can make a business more appealing to these workers as well as the entire workforce.
APM Readiness and Compliance
To determine your organization's preparedness for APMs, you'll first want to figure out the composition of your workforce's pay preferences. You can do this by calculating your pay-by-check population or direct deposit percentage. You could also look into any employee requests for faster access to funds to determine whether there is a significant call for APMs at your organization currently.
Compliance is another critical component to consider before you offer different payment methods for employees. Compliance will have numerous complexities, especially if you offer multiple products, have a large enterprise or are processing payroll for a workforce that's dispersed across many states.
For instance, about half of the states allow businesses to mandate electronic payment or direct deposit to a bank account or some type of card. However, the other states say businesses can offer paycards with the condition that they also offer a paper check if an employee requests one.
Even though state laws are always changing, that doesn't mean employers shouldn't still try to maximize their APM opportunities. Always disclose the terms and conditions of your APM programs and provide notifications for your employees. To make your APM program run smoothly, you should also educate your employees about it on an ongoing basis. For instance, when you administer paycards, explain how to activate a paycard, how to avoid fees when you use it and how to take advantage of all its benefits. Keeping your employees informed about available APM options can help them determine which offerings would be most in line with their wants and needs and could contribute to their satisfaction at work.
You should also consider compliance when you look for a paycard vendor. Due diligence is necessary — certain states have requirements, such as transaction history availability, free access to ATMs or a minimum number of transactions. The paycard vendor you choose should be able to meet all of those standards.
Paycard vendor security is also important, especially for employees who live paycheck-to-paycheck and need to buy critical items like groceries, formula and diapers. To safeguard employee accounts, be sure that the paycard vendor has security measures in place and a solid incident-response plan if a security breach occurs.
Best Practices for APM Rollout and Employee Satisfaction
Use a variety of learning methods when you roll out your APM program, such as onsite training, webinars and marketing materials to make sure you're reaching your audience, which may span multiple generations and possess a variety of learning styles. The program should also be bilingual, accounting for English and Spanish in most cases.
You can keep your employees informed by administering a "Did You Know?" series that teaches them about the organization's APM offerings. For example, you might ask, "Did you know how many free ATMs are available within a five-mile radius from work?" Make sure you're available to help your employees by keeping multiple lines of communication open for them to inquire about the programs. Gen Z, for example, may prefer to receive program assistance via online chat.
You can also increase employee satisfaction by implementing an active communication plan with your card holders. Use NPS scores, call recordings and follow-ups with clients to gain knowledge about card functionality and program satisfaction. Doing so can help you improve your APM program over time and ensure that your solutions speak to the wants and needs of every employee.
Learn more about how to attract, engage and retain top talent through the convenience and flexibility of an employee focused payment offering.