- The Washington Times - Tuesday, September 28, 2004

Q: My company is switching from paychecks to payroll cards. What do I need to know about these cards?

A: Payroll cards are similar to bank debit cards. They work like this: An employer loads a worker’s salary onto the card, and the worker can then withdraw the money in cash at an automated teller machine, or ATM. Many of the cards, especially if they carry the Visa or MasterCard logos, also can be used for purchases at retail outlets.

Andrew McDevitt, manager of government relations for the American Payroll Association in San Antonio, said the cards are gaining broader acceptance.

Users include hotels and hospitality companies that employ a lot of workers who don’t have bank accounts, and trucking and shipping companies that have many workers on the road to far-flung destinations.

It’s part of the move away from expensive paper paychecks, he said. Printing and processing a single paper check can cost an employer up to $1.50. An electronic direct deposit of a paycheck to an employee’s checking or savings account costs about 20 cents.

“If you employ a lot of workers who are unbanked, you can’t very well offer direct deposit,” Mr. McDevitt said. “So employers looking for ways to cut costs and move to a more electronic environment see payroll debit cards as an option.

“Funding a payroll card is more expensive than direct deposit, but not as expensive as cutting a check.”

The advantage for workers is that it’s easier for them to get their money, Mr. McDevitt said.

“They don’t have to go on payday to a bank or a check-cashing establishment and wait in line,” he said. “And some of these institutions charge a fee — sometimes 2 percent or more — to cash a paycheck.”

In addition, he added, “It helps these workers enter the electronic economy because with the payroll cards, they can buy online or use mail order.”

Mr. McDevitt said that workers who get their money via payroll card still get a monthly payroll statement, either by mail or at a designated Web site.

But this added convenience can come with some costs to workers.

Gail Hillebrand, a senior attorney with the Consumers Union office in San Francisco, said many workers have to pay fees for ATM withdrawals or retail use of their cards.

“There can be a monthly fee for using ATMs,” she said. “Sometimes employers pick up the fee, but other times it falls on the employee. Or there can be a fee after a certain number of transactions.”

Miss Hillebrand also said there are concerns that workers may not have the same protections on payroll cards that consumers have on traditional debit cards.

The federal Electronic Funds Transfer Act and its subsequent regulations set limits on how much a consumer stands to lose if a traditional card is stolen and then used by a thief; they also set deadlines for funds to be returned to a consumer.

Consumers Union and other public interest groups have urged federal regulators to clarify liability limits and error-resolution procedures for payroll and other stored-value cards.

Until that happens, Miss Hillebrand said, workers should ask their employers to negotiate similar protections from the financial institutions and other companies that issue the payroll cards.


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