If you’re like many employers, you pay most of your employees by direct deposit, and a small percentage by paycheck. If your workforce includes low-wage workers, you may also offer pay cards.
These are things we often take for granted. When was the last time you evaluated your wage payment methods? When did you last conduct a payroll compliance audit?
Every form of wage payment has its pros, cons, and regulations. Like most HR issues faced by employers today, they are subject to change. That’s why, every so often, it’s wise to review your payroll practices with fresh eyes.
You’ve Come A Long Way, Payroll
Wage payments have evolved a great deal over time. In ancient Egypt, wages were paid in the form of beer and bread. How do we know? Because payroll records were kept, captured in hieroglyphics carved into clay tablets.
During the Roman Empire, soldiers were paid in coins and salt—a luxury at the time—from which the word “salary” was derived.
Fast forward centuries later. Not that long ago, workers were paid in cash and coin. Cash gave way to paychecks, and in the 1970s, direct deposit was born. Today, 82% of U.S. workers are paid by direct deposit. The remaining are paid by check, pay card and yes, U.S. dollars.
Ins and Outs of Direct Deposit
Direct deposit is payroll’s gold standard because of the many advantages it offers. Employers save between $2.87 to $3.15 per paycheck by choosing paperless payroll, which is also environmentally friendly. Direct deposit gives workers immediate access to their funds— and with no trip to the bank required.
However, payroll compliance can get tricky when it comes to direct deposit.
Federal law is straightforward: employers can require workers to accept direct deposit, provided workers can choose their bank or an additional payment option. State laws, however, have a lot more variation.
Some states are silent regarding direct deposit—in these states, federal law reigns. However, in a number of states, employers must obtain employees’ permission to pay them via direct deposit. And others allow employers to require direct deposit, provided they offer an alternate method of payment for unbanked employees.
Then there’s the issue of pay stubs. While most states allow employers to provide electronic pay stubs, printed pay stubs remain mandatory in a handful of states.
So, while direct deposit continues to offer many benefits, employers need to be mindful of payroll compliance, especially those making payroll in multiple states.
When to Give Pay Cards a Second Look
About 6.5% of U.S. households are unbanked—i.e., they don’t have bank accounts—according to the FDIC. If you hire low-wage, hourly workers, chances are, some are unbanked.
For unbanked employees, direct deposit isn’t an option. These workers are likely receiving paper paychecks for this reason. Offering them pay cards could help them move to firmer financial ground.
According to the American Payroll Association, unbanked households pay close to $1,000 each year in banking-related fees, including check-cashing services and money orders.
Pay cards let workers keep more of their wages, while giving them access to what’s essentially debit cards. And switching from paychecks to pay cards—another form of paperless payroll—saves employers up to $3.15 per paycheck.
But not all pay cards are created equal. When choosing a pay card provider, employers should insist on branded pay cards (which offer enhanced security features), a large fee-free ATM network, and few if any transaction fees. Because pay cards are also legislated by state, choose a provider that’s a stickler for payroll compliance.
What about Paying Employees in Cash?
This may surprise you, but in some industries, it’s still standard to pay workers in cash. Yes, it’s legal, provided the business complies with all employment laws, such as withholding taxes and deductions and maintaining payroll records.
This is not to be confused with paying “under the table.” However, the IRS does tend to give cash businesses closer scrutiny, so detailed record-keeping is key.
Sometimes, More is More
Employers who are sensitive to the needs of their workforce might do well to offer a mix of wage payment options. While most employers already offer direct deposit and paychecks, adding pay cards to the mix might benefit low-wage, hourly workers. For other employers, cash will remain the payment method of choice.
Whatever forms of wage payment you offer, you need a payroll software provider than can handle them all with ease—while maintaining payroll compliance for them all, in every state where you operate.EPAY’s HR and payroll solution is up to this challenge. Direct deposit, paychecks, pay cards, cash… our system handles them all, while creating detailed records that hold up to rigorous audits. We also offer one of the most attractive pay card programs you’ll find, and it’s absolutely free to EPAY customers—why not see for yourself?