Usher out paper paychecks; increase employee retention.
(This article was republished with permission from the American Payroll Association.*)
Roughly 65 million years ago, scientists believe that a spectacular meteor strike ended the era of the dinosaurs. Somewhat more recently, the COVID-19 pandemic may have sparked an end of a different kind … the end of paper paychecks and pay statements.
In March and April 2020, the entire workforce was scrambling to adjust to abrupt government travel and work-from-home restrictions. At the time, only essential workers of essential organizations were permitted to travel. Offices were closed. It was a huge effort and risk just to administer payroll. Except for those who were already fully electronic.
This is not new because disasters are not new. Every year, countless local weather or other emergencies make it nearly impossible to deliver payroll, touching off that mad scramble to somehow—often at great risk—come through with those paper paychecks. Except for those who were already fully electronic.
In the COVID-19 environment, it is not only the payroll professionals who are endangered. Now every worker who receives or handles a paper check or pay statement is at risk. Every person in the chain touches and hands-off checks to other people to achieve the intended funds transfer. The recipient generally needs to travel and be in contact with other people to cash or deposit the check. Each person unnecessarily risks infection. This is not rational.
While it was necessary in the past to offer paper paychecks for those employees who don't have a bank account, new payroll alternatives offer improved consumer protections and convenience. The latest payroll cards are now less costly and more functional than conventional bank accounts. They enable free online bill payment, internet shopping, and basic travel needs such as rental cars. They protect against fraud and unauthorized use. They can't be overdrafted, so no more bank nonsufficient funds fees. Employees can take their card to any bank displaying a Visa or Mastercard logo and get their entire pay in cash, or access their funds through common ATM networks, or get cash-back purchases at many retailers, all at no cost.
In addition, new payroll features enable workers to access their earned wages very efficiently any time before payday, eliminating the need to use costly payday lenders. Workers who use this like it so much that there's a clear employee retention improvement, which is terrific news to Human Resources (HR) departments. But it's only available to employees who are paid electronically.
Negotiation options for paper checks are often terrible. Those with bank accounts must take extra steps to present their check and wait for check clearing. Those without bank accounts often use costly check-cashing stores and are then carrying their entire paycheck in cash, which is subject to loss or theft.
Almost all government benefits are now paid electronically (e.g., unemployment benefits, social security, Supplemental Assistance Nutrition Program (SNAP), disability, etc.). Government entities often pay all state employees electronically. European workers haven't seen a paper paycheck in decades, and they seem pretty happy. At this point, it's only the U.S. workforce that remains mired in payroll arrangements better suited to the 1940s. Suddenly, it's now dangerous to stick with the old ways.
Some argue that state laws require employers to offer paper checks. But those same wage payment laws, some unchanged since the 1940s, often also require employers to offer cash, and employers stopped handing out cash envelopes in the '60s. Best practices evolve, with leadership.
What payroll professionals should do now
As payroll professionals know, when it comes to financial matters, people can be irrational and stubborn, avoiding any change, even those clearly in their best interests. Avoidance and inertia result in too many people making and keeping ill-advised choices, such as not saving for retirement, using costly payday lenders, and sticking with paper paychecks despite the inconvenience, health risk, extra costs, and steps needed to negotiate them. In their 2009 book Nudge: Improving Decisions About Health, Wealth, and Happiness, researchers Richard Thaler and Cass Sunstein suggest that the best-intentioned role of employers is to "nudge" workers when a choice or change is in their best interests.
Do some research and pick up helpful marketing materials that summarize the benefits of direct deposit and paycards. Many great paycards on the market today are less costly and more functional than regular bank accounts. Many can be cost-free (e.g., using in-network ATMs and free electronic banking features). Many also come with free savings accounts, financial advice, and other features, such as spending summaries by category and helpful prompts to consider shifting money to savings. Present your holdouts with their new choices.
You can also invite employees to use their own reloadable debit cards, which can be set up for direct deposit.
Eliminate paper pay statements
There are strangely about twice as many paper pay statements still being printed for people who are paid electronically as there are paper paychecks being printed. There's no excuse for that. Most employers present electronic pay as a package: If you like electronic pay, you'll also get your pay statement electronically. Check to see if you're still printing and delivering paper pay statements (pay stubs) and let folks know it's time to shift to electronic. It's easy to access electronic pay statements securely whenever you need them.
So here we are at the end of the proverbial Cretaceous Period, and paper paychecks are right up there with the Stegosaurus and Tyrannosaurus: Extinct. In a few years, you'll be herding grandchildren through the museum, and you'll be the only one in the room able to explain the U.S. Paycheck display ("… and then some employees would take this piece of paper to a "check-cashing" store in a bad part of town, which would charge them a large fee to exchange the "paycheck" for "cash." Cash is what people once used to pay for …)."
Here's your leadership role to bring this about: Do your part. Take action to nudge your remaining holdouts to join the 21st century. They may grumble at first and later ask why you didn't take the initiative sooner. And happily stay on in your organization longer.
Related resource from ADP
Download the ADP Research Institute® report on The Evolution of Pay.
Pete Isberg manages legislative and regulatory affairs for ADP, Inc., and serves as President of the National Payroll Reporting Consortium, a non-profit trade association whose member companies provide payroll processing, employment tax filing, and related services. Isberg was the APA's Payroll Man of the Year in 2013 and is a member of the APA's Board of Contributing Writers for PAYTECH and the Government Relations Task Force (GRTF) Federal Issues, Payroll Cards, and State and Local Topics Subcommittees.
*The American Payroll Association (APA), www.americanpayroll.org, is the U.S. leader in payroll education, publications, and training. This nonprofit association conducts more than 300 payroll training conferences and seminars across the country each year and publishes a complete library of resource texts and newsletters. Representing more than 20,000 members, the APA is the industry's highly respected and collective voice in Washington, D.C. Get more information at www.americanpayroll.org.
The Global Payroll Management Institute (GPMI), www.GPMInstitute.com, spearheads the APA's global initiatives to provide the world with a leading community of payroll leaders, managers, practitioners, researchers, and technology experts. Subscribers connect with each other through networking discussions, collaborative opportunities, and access to education and publications dedicated to global payroll strategies, knowledge, research, employment, and training. GPMI also publishes several global payroll texts and white papers as a benefit to subscribers. Get more information at www.GPMInstitute.com.
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