The Payroll Card Pursues Stronger Employer-Employee Ties

Direct debit may seem like the obvious choice for employees to receive their wages, but when more than one-fifth of Americans are unbanked or underbanked, employers need to find an alternative.

Unfortunately, the traditional alternative of printing out paper checks and having professionals stand in line for expensive check-cashing services has led to too many workers paying too much to access hard-earned money, according to Adam Sohn, chief growth officer at SHRM (Society for Human Resource Management).

Speaking with PYMNTS, Sohn offered insight into why prepaid debit cards are a valuable solution to not only address the payroll needs of underbanked professionals, but strengthen the employer-employee relationship while bringing more people into the digital economy.

Paper Checks And The Underbanked

The paper check is undeniably an important tool in connecting underbanked employees to their earned wages. Yet besides filling a need, Sohn noted that perhaps the only major benefit of the paper check is the “directness” of handing something physical to a worker.

“It’s not that checks aren’t still useful, but the cost associated with paper checks from the employer perspective, and the risks associated with losing checks and having to replace them, creates a risk profile that’s entirely avoidable in the digital economy,” he said.

Certainly, a paper check is better than nothing at all, Sohn continued. But with the Federal Reserve estimating 22 percent of Americans are unbanked or underbanked, too many professionals are having to spend a significant portion of their paycheck to access cash. And when those workers are living paycheck to paycheck or find themselves in a financially precarious situation, check cashing services are far from ideal.

Luckily, the technology is largely already in place to address these payroll pain points.

“Many people in working communities already have phones,” said Sohn. “The technology is already there, they just need the content to learn online bill pay and to be brought into the digital economy.”

Embracing Existing Technology

SHRM recently launched a payroll tool designed to take advantage of the ubiquity of the mobile phone. Dubbed SHRM PaySolution, the electronic payroll feature wields the prepaid debit card to more quickly connect professionals with their earned wages — according to SHRM, that can mean access to money up to two days faster than if a professional were to use legacy payroll options.

The mobile phone allows workers to manage their funds in a digital platform, set up online bill pay, and access resources to improve their financial literacy. The debit card, meanwhile, quickly connects professionals to their earned wages without having to open a bank account or go to a check cashing service or risk losing a check.

“Those extra couple of days to get faster access to your money can make a whole lot of difference,” said Sohn. “The idea of linking payroll funds to a card gives faster access to wages for people living paycheck to paycheck — and there are so many of them.”

A Stronger Employer-Employee Relationship

While the payroll card can be a more viable option for underbanked professionals, the question remains: with smartphones so ubiquitous, and with so many FinTech and traditional account options on the market today, why are so many Americans still left underserved and without bank accounts?

As Sohn explained, there are plenty of reasons. A professional may be coming to the U.S. for the first time, or may be straight out of high school or college with their first job. Connecting theses professionals to their wages in a more affordable and efficient manner isn’t only about getting workers paid, he noted. It’s also about ensuring they have access to resources that can strengthen their financial standing. Many underbanked individuals struggle to access credit, for example. By digitizing payroll, features like automating bill pay via a smartphone can help place them on the path to financial wellness and incorporate more people into the digital economy.

“These things can help rehabilitate your credit quickly,” said Sohn. “The goal isn’t to keep people out of the banking system. But the goal is certainly to not have people discriminated against that aren’t part of the banking system.”

Another key focus is to improve the employee-employer relationship. Particularly today, amid a global health crisis, economic volatility and high unemployment, professionals’ ability to access their earned wages efficiently and affordably has a profound impact on their relationship with an employer. Connecting workers to their money faster can further strengthen those ties, according to Sohn.

“How do we step up and help employers and employees support each other through this tough growing pain?” he said. “I think these payroll programs can really make a significant difference in the day-to-day lives of Americans.”