Paychecks may be going the way of eight-track tapes and outdoor clotheslines.
Businesses, which for years have been pushing to replace costly paper checks with electronic payments to workers, are gaining momentum with a new
pay option. In addition to the familiar direct-deposit payments to employees' bank accounts, they're turning to "payroll cards" for workers who
don't have their own accounts.
The cards function like traditional debit cards, allowing employees to withdraw cash from ATMs and make debit card purchases. The main
differences: They're set up by employers, not employees. And, unlike paper checks that must be cashed, wages can be loaded automatically onto the
cards for 24-hour access.
"The cards offer quite a lot of benefits to employees and to the companies that employ them," says Lucy Key Price, a Houston-based consultant who
was 2002 president of the American Payroll Association. "There are some employees who just don't have bank accounts and don't want them, or can't
get to the bank, or don't believe in them for whatever reason."
For employers, payroll cards can improve the bottom line -- eliminating some fees, cutting labor expenses, and slashing the price of preparing
paper checks, which now cost an average $1.07 per check plus postage.
For employees without bank accounts, having payroll cards mean they can avoid check-cashing fees that average 2.5 percent of a check's value,
although some accounts do charge transaction fees, according to the association.
"Most of the people who don't have bank accounts cash their checks at check-cashing places, neighborhood places," Price says. "And they're charged
sometimes a tremendous fee."
A 2003 survey by Price's association found that 97 percent of companies now offer their employees direct deposit of wages, and roughly 6 percent
make payroll cards available.
Direct deposit is voluntary at 83 percent of businesses, although a majority of companies would make it mandatory if the law allowed, according to
the payroll association's survey. Thirty-five states, including Texas, prohibit mandatory direct deposit, says Brent Gow, a payroll association
member who has researched payroll cards extensively.
The survey found that some companies do, however, offer various enticements to get workers to opt for electronic payments. Among them: offering
financial incentives, allowing employees with direct deposit earlier access to their money, and delaying receipt of paper paychecks by mailing
them to employees' homes.
Among the employers experimenting with payroll cards is the city of Dallas, which this month rolled out cards for new employees. The city
eventually intends to convert all of its 13,000 workers to electronic payments, either into their bank accounts or onto payroll cards, says James
Mongaras, director of Dallas' efficiency team.
Already, 80 percent of Dallas city employees have their wages directly deposited into bank accounts, up from 53 percent 18 months ago, he says.
That growth came after the city announced it would eliminate traditional paychecks this year. Essentially, the city argued that the law doesn't
apply to government agencies.
"You don't have to have staff to reconcile checks anymore," Mongaras says. "Eventually, what we'd like to do is get away from paper altogether."
The payroll cards charge the city employees $1.50 each time they access their money, he says. But the city pays for two transactions during each
pay period, making the cards free to workers who don't use it more often.
Roughly 13 percent of U.S. households don't have a checking account, according to the Payroll Debit Card Resource Center. On average, those "unbanked"
Americans earn $24,000 a year, with the majority collecting less than $10,000 annually. Such low incomes make it difficult to pay service charges
or to maintain the minimum balances that some banks require to avoid checking account fees.
The resource center estimates that just 10 percent of Americans without checking accounts now use payroll cards, although demand has been
"It is the most sought after-subject anywhere I go," Gow says.