It’s no secret that prepaid card use has been on the rise in recent years, and this popularity shows no signs of slowing down. Consumers, both young and old, have come to see prepaid debit cards as a convenient way to handle everyday financial transactions, including person-to-person payments, bill payments, and a host of others.
Not only have consumers gravitated to prepaid debit cards, business owners have also begun to realize the benefits. Many employers started to pay employees with reloadable prepaid cards instead of paper checks. According to Aite Group, employer-issued prepaid cards rose from 3.1 million in 2010 to 5.8 million as of 2013. The Aite Group also reported that businesses paid over $34 billion in wages to prepaid cards in 2012 alone. Card loads to employer-issued debit cards are expected to exceed $68 billion by the end of 2017.
Generally, prepaid debit card payroll programs have been a positive addition to the workplace, particularly for unbanked or underbanked employees. Here, we’ll take a look at the benefits of implementing prepaid debit cards as a way to pay employees.
Prepaid Cards Can Lead to Huge Cost Savings
One of the main reasons employers are switching to prepaid debit cards for payroll administration is the huge cost savings that can be realized by doing so. Employers that favor depositing wages to prepaid debit cards usually do so in an effort to replace paper checks for employees who don’t have bank accounts to receive direct deposit or prefer to be paid in cash or by check.
Businesses that employ hourly employees are also big fans of prepaid payroll debit cards. This is because hourly employees are traditionally less likely to have access to a bank account, and paying via card reduces check issuance fees for the employer and check cashing fees for the employee. One major card-issuer indicated that businesses with 500 or more employees could save over $20,000 annually by simply switching from paper checks to prepaid payroll cards.
Prepaid Cards Offer Better Security
Another reason employers are making the shift to prepaid payroll debit cards is increased security. Not only do these cards serve to eliminate paper checks, they represent a safer alternative to cash. Some businesses pay employees and vendors in cash, and this can present major security issues. Cash is not easily traceable and is therefore vulnerable to acts of theft and loss.
By using prepaid debit cards for payroll and other payments, the security risk is significantly lowered. Additionally, most prepaid cards are subject to the same fraud protection as branded debit cards tied to a bank account. This means that if the card is reported as lost or stolen in a timely manner, the funds on the card are likely to be protected.
Not only that, but employers no longer have to worry about lost checks or keeping track of funds when checks go uncashed. Prepaid cards also make accounting easier, since all money going in and out is easily seen electronically and payroll discrepancies can be quickly reconciled.
Some Caveats of Prepaid Payroll Cards
Despite all the great things about prepaid payroll debit cards, there are some drawbacks that both employers and workers should be aware of. For one, while prepaid payroll cards can function similarly to bank accounts, these cards don’t always offer the same features that bank accounts do.
For example, many employer-sponsored prepaid cards do not have check-writing privileges. This may be an issue for employees who prefer to pay for things by check. This problem can usually be rectified by using the prepaid card to pay bills online or via phone.
Another issue is that some employers have strongly encouraged employees to receive their pay via prepaid debit card. This, in itself, isn’t really a problem, but issues may arise if employers fail to offer alternative methods to receive wages. In that case, employees feel forced to receive wages via prepaid card. Employers can address this issue by continuing to offer direct deposit to a bank account or a prepaid card that the employee already has as well as by continuing to offer the paper check option. Legally, employers cannot force employees to use prepaid debit cards to receive wages.
Finally, employees who receive their wages on payroll cards should be made aware of any associated fees. Some cards charge fees for ATM withdrawals, as well as maintenance and transaction fees. Employers should be proactive by choosing cards that not only save them money, but save employees money as well. Employees who opt to have their paychecks direct deposited to payroll cards should familiarize themselves with the associated terms and conditions so they can use them in a cost-effective manner.
Paying employees via prepaid payroll debit card can be extremely beneficial for employers and employees. However, employers should always ensure that they are choosing a prepaid debit card with everyone’s best interest in mind. There is no doubt that prepaid payroll cards will continue to grow in popularity, so taking proper precautions will only serve to help get even more workers on board.
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