B2B Payments

Putting An End To The Payroll Card Witch Hunt

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Corporate payroll practices have been under fire for months now, with no signs of slowing. Frequenting these debates is the issue of the payroll card, a tool that critics argue forces unfair fees on employees to access and spend their wages. Proponents of payroll cards, however, say they provide underbanked employees with otherwise inaccessible financial services.

One of the most recent additions to the controversy is a paper published by the Restaurant Opportunities Centers United (ROC) group. Its report claimed that the use of payroll card programs by Darden, which operates top restaurant chains, like Olive Garden, saves as much as $5 million a year by forcing employees to use payroll cards. Those employees, however, are forced to pay fees tied to the card, the paper claimed.

The report cited a survey conducted among Darden employees by ROC. Researchers found that 76 percent confirmed they were forced to pay fees when accessing their wages via ATM; those wages can reach up to $1.75 for withdrawals, ROC said.

Further, 63 percent of Darden employees said they were never warned about the fees associated with payroll cards.

Following the release of the report earlier this month, Darden defended its practices but also announced plans to expand access to no-fee ATMs for its payroll card users. The firm said it would be expanding its fleet of ATMs that don’t charge withdrawal fees to more than 79,000 by June 1.

Darden added that it would also put an end to the practice of charging a $0.50 fee if payroll cards are rejected at a POS due to insufficient funds.

 

Another Angle

While Darden seemed to go on the defensive and to make efforts to resolve some of the criticisms against payroll cards, other players in the debate are proactively standing in favor of the payroll tool.

One of them is SOLE, which provides payroll cards for businesses to compensate their employees.

In an official blog post published this month, SOLE highlighted the top misconceptions surrounding payroll cards, citing claims that payroll cards make it difficult for employees to access their wages or that it costs too much for employees to use payroll cards.

“The reality is that the card is a replacement for a traditional bank account. Employees can make point-of-sale transactions, get cash back and pay bills online at no cost,” SOLE stated, adding that state regulation has required that paycard firms provide the option for employees to withdraw their funds from a payroll card at a bank branch at no cost.

Further, SOLE argued, “paycards are only costly when used incorrectly.” The post stated that there are no charges for cash back and that traditional card solutions also charge fees when funds are withdrawn at an out-of-network ATM.

“The most important component here is the element of cardholder education,” SOLE stated.

The post added that miseducation surrounding payroll cards often stems from the fact that HR units that implement these programs don’t always have direct access to the employees using them. SOLE recommended that increasing education for cardholders will reduce most of the friction associated with using payroll cards and that the responsibility should land on payroll card companies.

“The lawsuits in the media are examples of paycard companies who have failed to rise to this challenge, by not finding ways to educate their cardholders,” SOLE argued.

Earlier this year, ADP published its own blog post highlighting the pros and cons for employers that decide to issue wages via payroll card instead of paper check.

“Paper checks need to be prepared, printed and distributed, and much of this is done manually,” ADP wrote. “This may mean your enterprise is paying more to pay employees than it would using paycards.”

Payroll cards can be advantageous to underbanked workers, the firm said, and can help them avoid the fees linked to cashing a check. According to the Brookings Institution, ADP cited, underbanked employees pay $8 billion a year in fees linked to cashing their payroll checks.

But in order for the benefits of the payroll card to be realized, ADP argued, employers must follow best practices. They include enabling workers to access their full wages in cash without any fees, offering a payroll card that is “widely accepted” and providing clear information and education — in writing — about payroll cards to cardholders.

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