Deep Dive: Why Staffing Agencies Must Consider Payroll Cards

Employers that cannot quickly adjust their staffing levels to meet customer demand fluctuations and workers’ life shifts may find themselves in a bind.

Retailers often need additional coverage during peak holiday shopping periods, hospitals may need substitutes for nurses on paternity leave and construction companies might need to increase staff for sizable projects.

These businesses do not always have the time or resources to find and hire temporary workers, add them to payroll, and remove them a few weeks later. Companies thus often turn to staffing agencies — which keep temporary workers on payroll and send them out as needed to short-term jobs — to help them connect with ad hoc workers.

The United States’ tight labor market exacerbates competitive tensions for such agencies, though. The national unemployment rate fell to its lowest level since 1969 in April 2019 — 3.6 percent. Such rates do not account for the underemployed or those that have given up after struggling to find opportunities, but they do signal unattached workers’ relative availability for eager-to-hire companies.

High employment rates pit staffing agencies against each other to recruit temps. That appears to concern many businesses as 74 percent of recruiters stated in 2018 that they expected to more intensely vie against other firms to attract new hires in 2020. Staffing agencies in the U.S. employ more than 3 million temporary and contract workers each week, and retaining and growing their shares of the temporary workforce requires catering to employees’ work and payment preferences.

This month’s Deep Dive digs into the data that guides staffing agencies’ payroll disbursement decisions, including payroll cards’ pros and cons.

Employees’ Payroll Card Opinions

A 2019 report found that 93 percent of American employee respondents received their earnings through direct deposit, 5 percent were paid through paper checks and 2 percent relied on alternatives like payroll cards. Checks have been common in temporary staffing, but disbursements to reloadable debit cards are drawing new interest. The number of activated payroll cards in the U.S. rose from 3.1 million in 2010 to 5.9 million in 2017 and is expected to hit 8.4 million by 2022. Employers disburse all or some of employees’ wages onto the cards, and the funds can immediately be withdrawn at ATMs or used to make payments.

The Center for Financial Services Innovation (CFSI) found in 2018 that American adults who used payroll cards represented a range of income brackets: 16 percent made $100,000 annually, and 35 percent took in $30,000 to $59,000 annually. The demographic using payroll cards skewed more strongly toward households in sub-$100,000 annual salary brackets, but users commonly had college and post-graduate degrees, identified either as nonwhite or as white Hispanic and were between 30 and 49 years of age. Forty-six percent reported themselves as non-Hispanic white, 26 percent selected Hispanic, 18 percent identified as black and 10 percent chose another category.

Some unbanked employees prefer payroll card disbursements because the method is fast, convenient and more easily replaced than paper checks if lost. Bank account holders may select this method because it makes funds immediately available and dodges the one- to two-day wait typical of direct deposit.

Workers may find benefits beyond simply receiving their funds, too, as many use payment cards to manage budgeting and spending. They can have portions of their wages disbursed to cards designated for purposes such as entertainment or groceries while keeping the remainder in bank accounts. The 2018 CFSI study found most workers took their full earnings on payroll cards when paid through them — 16 percent received only a portion of their pay via the cards and the rest via cash, check or direct deposit. Most who used payroll cards also had other banking solutions, the report found.

These cards are not without their downsides, of course. Users might be charged fees for transactions like checking balances at ATMs, making withdrawals from out-of-network ATMs or receiving paper statements.

Payroll Cards’ Impact on Staffing Agencies

Paying employees through payroll cards presents staffing agencies with new administrative and budgeting questions, though. Employers may be accustomed to payroll money sitting in corporate bank accounts and accruing interest during the days it took employees to cash checks. The immediate money movement of faster payroll disbursements eliminates that corporate revenue boost.

Direct-to-card disbursements can also save staffing agencies money, enabling employers to evade the time loss and expense of printing and issuing paper checks to pay unbanked employees. Such transfers also mean employers are no longer responsible for accepting and safeguarding sensitive bank account details, as is the case when making direct deposits. That information is not used when sending payments to cards.

The greatest benefit staffing agencies stand to reap may not be the escape from administrative or security headaches and check-cutting costs, however. Speedy, direct-to-card wage disbursements may win more new hires over and help agencies retain their temporary work forces — despite the United States’ tight labor market.