Paper or plastic — it's not a question just for the grocery store checkout line anymore. Now some employers are facing it when figuring out the most efficient way to pay workers.
These companies are trying to eliminate paper paychecks for employees who don't do direct deposit, and instead issue them payroll debit cards, also called paycards.
The cards, which are loaded electronically with workers' pay, are designed for employees who don't have bank accounts. About 8% of U.S. households don't have accounts in financial institutions, according to the Federal Deposit Insurance Corp.
Distributing wages on paycards is often cheaper for a company than buying, processing and distributing paychecks. Employees who get the cards, which come with personal identification numbers, can use them at many bank ATMs.
In Irvine, Helpmates Staffing Services — which has 60 employees but can have more than 1,000 temporary workers on its payroll depending on the contracts it gets — initiated a paycard program four months ago. The larger the number of potential paycard users, the lower the cost can be for an employer.
About 17% of Helpmates' temporary workers chose the paycards for payment, which is more than the company expected, Controller Scott Leighton said. An additional 63% use direct deposit, leaving only 20% who get paid by check.
"Moving paperless is going to save costs and make us more productive," Leighton said. For example, it cuts back on staffers having to make special trips to worksites with paychecks.
New hires at Helpmates are offered direct deposit and paycard options. But California employers must still issue paper checks to workers who want them, Department of Industrial Relations spokeswoman Erika Monterroza said.
Paycard vendors tout the advantages of the cards for employees who don't have bank accounts. They enable workers to avoid excessive fees charged by check-cashing companies. And in addition to being accepted at ATMs, paycards in most cases can be used like bank debit cards to make purchases from retailers and even pay bills online.
But users can be hit with a variety of fees.
In California there are no laws that specifically regulate paycards, but according to an opinion issued in 2008 by the Division of Labor Standards Enforcement, a card user must be allowed to make one free withdrawal of his or her pay per pay period.
That's because there are laws preventing employers from requiring workers to pay a fee just to receive wages.
But there's nothing to prevent the assessment of fees by paycard companies for uses, such as ATM withdrawals after the initial free withdrawal or paying bills online. There can also be monthly fees and other charges.
Also, there can be inconveniences. If a paycard is used at a gas pump, a $50 or $75 temporary hold on could be placed on the funds. (Using the card inside the station to pay for gas usually eliminates that problem.)
Checking the amount of money left on a card usually requires a phone call. And using the card along with another form of payment — such as cash or a credit card — to buy something for more money than is left on the card can be tricky too.
Angie Wei, legislative director of the California Labor Federation, said employers should be upfront with workers about the fees that might be assessed.
"We don't want to stand in the way of modernity for workers, but we want people to be 'eyes wide open,'" she said.
Some states already have laws that specifically regulate paycards. Wei said her organization was pushing for California to join them.
The cost to employers can vary. Some card providers charge $1 each for the cards plus monthly fees, although they can be discounted. Generally, the more cards an employer issues, the lower the fees.
"You try to keep it so it's a definite cost advantage to the employer so they can easily see 'Wow — this is a lot cheaper than checks, and I don't have to worry about replacing lost checks,' " said Don Ault, a vice president at Brentwood, Tenn.-based card provider Comdata Corp.
A study showed that only 40% of employers have heard of payroll cards, but the card industry expects that to change. Last year, the dollar value loaded on to major brand name paycards was $18.9 billion, or 24% of all types of prepaid cards that carried names such as Visa, MasterCard or Discover, according to a May report by Aite Group of Boston.
The compounded annual growth rate for payroll cards is expected to be 29% from 2010 to 2014, the report said.
Because the costs to employers can vary, doing some research can go a long way toward saving money. The American Payroll Assn. has a website that can be a good starting point.