Perspective: Why Electronic Payroll Distribution Systems?
Paycards alone are unlikely to enable 100 percent electronic payroll because a paper paycheck must still be the default for employees who elect neither direct deposit nor paycard. This is where electronic payroll distribution systems (EPDS) that include convenience checks come into place. With such a solution in place, instead of receiving a company-issued paper paycheck, employees who receive payment into an EPDS account see their accounts credited for the amount of their wages. The employee can make purchases using the paycard just like any other debit card, or withdraw cash from the account balance at ATMs. If an employee still prefers a paper paycheck, they simply authorize a convenience check that can be cashed or deposited. The employee’s paycard and/or convenience check is used to debit funds from this account. Properly designed by the EPDS provider, the employee always has access to their funds by paper check, thus enabling compliance with wage-payment laws across the 50 states.
For efficiency, EPDS providers may track balance details of employee accounts in a structure that pools funds of all employee accounts into large accounts held at the issuing financial institution for the benefit of (FBO) employee account holders. Properly structured, this model allows the employee’s account to be in his or her own name and to be FDIC-insured.
There several key advantages of using an EPDS. They include:
- Employers benefit from EPDS through reductions in payroll administration costs related to printing and distributing paper checks, and managing issues related to lost, stolen, misrouted, and uncashed checks.
- For employees, especially those who rely solely on the paycard or may be unbanked, they get to enjoy benefits similar to those of having a debit card with a bank.
- Employees don’t have to worry about losing cash that they are carrying around, nor do they ever have to wonder if the paycheck is actually going to show up at their place of work on payday. They no longer have to deal with the inconvenience of cashing or depositing a company paycheck. Paycards are faster, easier, and safer than paper checks—and the balances are FDIC-insured.
Rob Kirsh is a director of product management for prepaid solutions at First Data.