With electronic pay, money goes straight to workers. With no checks to cash, and no need for check cashers, unbanked workers can save hundreds of dollars a year. Electronic pay often also saves employers money and staff time for cutting, and often having to replace lost or stolen, paper checks. According to the City of San Francisco’s Office of Financial Empowerment:
- the average unbanked worker spends $711 on check cashing and other services annually
- the average extra cost of each paper paycheck, per payment, (vs. direct deposit) is $2.87 – $3.15
- the average employer cost for each replacement check is $8-10
Offering workers two electronic pay solutions – direct deposit to a bank account and one responsible paycard – can save unbanked workers hundreds of dollars per year in check cashing fees. Workers who don’t have, or don’t provide the routing number for, a bank account receive their paycheck via an employer issued responsible payroll card from which they can draw it down either in a lump sum or in smaller amounts from in-network ATMs. Responsible payroll cards offer workers multiple ways and many locations to draw down their earnings at no charge.
The social enterprise chooses a responsible payroll card product and enters into a contract with the vendor. The social enterprise informs workers upon hire that they pay electronically via a direct deposit into each workers bank account or via payroll card. Workers who don’t provide the social enterprise with an account and routing number for direct deposit are issued a payroll card. Each pay period, funds are deposited electronically into the workers’ bank accounts or onto their issued payroll card. Workers are able to easily able to draw down funds at no cost from their bank or paycard (assuming a responsible paycard is chosen).
There are many payroll that have steep fees that can cut into a workers earnings. In contrast, responsible payroll card products meet all of the following requirements:
- Full, clear fee schedule (no hidden fees)
- No overdraft option, or fees
- No fee to open a card or load pay; no monthly or annual fee
- No fees or surcharges for in-network ATM withdrawals
- Access to in-network ATMs where employees live and work
- No fees at point of sale (retail purchase) or for declined transactions
- Strong consumer protections including FDIC insurance
Effectiveness and relevance
If implemented in conjunction with a responsible payroll card, social enterprises can save their low-wage workers (a high percentage of which are likely unbanked) from spending money each paycheck on steep check cashing fees, fees which can easily add up to several hundred dollars per worker per year.
Availability of public resources
There are potentially resources available to support financial education and coaching consistent with the goals of connecting social enterprise workers and low-income clients to responsible financial products. In general, this is very low cost intervention and may actually save the social enterprise money relative to the cost of providing (and replacing) paper checks.
Each state has regulations governing pay via direct deposit and payroll cards. However, any payroll provider or card provider will be aware of these and can ensure that the social enterprise is in compliance.
Upfront coordination and time required
Some upfront time to choose vendor/partners with responsible products designed to meet needs of low-wage workforce. However, switch to direct deposit should save staff time every pay period.
CurrenC SF, an initiative of the City and County of San Francisco’s Office of Financial Empowerment, has information and toolkits around converting to electronic pay and offers recommendations for responsible payroll cards.
“Pay me how? What you should know about payroll cards” by the Consumers Union.