| It has been estimated that 50 percent to 60 percent of | | | | employees into easily; however, one thing is true...either |
| employees paid in the United States participate in a | | | | your employees have a bank account or they do not. |
| direct deposit service offered by their employers for | | | | Those employees that have a bank account are |
| payroll funds. This is a growing trend as there are | | | | commonly referred to as 'banked' and those that do |
| many benefits to employers and employees alike. | | | | not have a bank account are referred to as |
| Direct deposit involves a series of steps that | | | | 'un-banked' or 'self-banked.' For banked employees, in |
| culminates in the employee receiving wages | | | | most cases, their bank will accept direct deposit of |
| electronically into their bank account, whether they are | | | | funds. It saves their financial institution money just as it |
| paid on an hourly basis or salaried. | | | | saves your organization money. |
| For the staffing industry in particular, this trend poses a | | | | Un-banked employees face many obstacles in |
| significant potential for savings as the volume of payroll | | | | managing their payroll checks. Simply cashing their |
| checks for external staff is far greater than that of | | | | checks may induce charges such as check cashing |
| internal staff. For example, a staffing firm with 20 staff | | | | fees from the bank issuing the check or check cashing |
| members may employ as many as 500 to 1,000 | | | | services. Many banks are now charging a $5 per |
| temporary employees per pay period. The costs | | | | check cashing fee to non-customers in an effort to |
| associated with paying this many employees is on par | | | | decrease their operating costs and minimize teller |
| with much larger organizations outside the staffing | | | | transactions. The other option is to use a check |
| industry who, like you, strive to provide superior service | | | | cashing service, which may charge from two percent |
| at a minimal cost. By providing direct deposit to your | | | | to seven percent or more. That translates to $5 to $17 |
| employees, you will experience dramatic savings as | | | | a week for a $250 check. Both of these options are |
| well as improve relations with your employees by | | | | drawing significant fees just for the purpose of turning |
| providing this valuable benefit. | | | | electronic funds into cash. |
| Background on the Market | | | | While for some this may be something worth paying |
| Over the past eight to ten years, we have all had | | | | for, it may be a major penalty to others who desire a |
| experiences with either pre-paid telephone cards, gift | | | | different way of managing their money other than |
| cards or the omnipresent debit cards. These are all | | | | carrying cash around. On the employer side of the |
| convenient ways to store money that can be utilized | | | | equation, there are significant costs as well. The cost |
| either by a specific individual or by the person | | | | can be associated with several aspects of |
| possessing the card. More recently, the concept of | | | | administrative duties, including processing time of |
| payroll cards has been introduced as an alternative | | | | payroll, lost checks and their associated costs, etc. |
| way to provide payroll funds to individuals. These | | | | From the perspective of the employer's potential |
| cards are a fairly basic concept that may sound | | | | savings, there was a study conducted in 1999 by the |
| familiar. Load an employee's payroll funds onto a card | | | | National Automated Clearing House Association |
| that can then either be withdrawn from an automated | | | | (NACHA), which indicated that an employer would |
| teller machine (ATM) or used to purchase goods and | | | | save an average of $48 per year per employee by |
| or services up to the amount associated with the card, | | | | eliminating the process of generating paper paychecks. |
| just like a debit card. The card, once all funds have | | | | From another perspective, there are many individuals |
| been used, can either be re-loaded with funds or | | | | that may have a bank account but may not have a |
| discarded. Therefore, instead of an employee receiving | | | | credit card or, if they do possess a credit card it may |
| a paycheck they receive payroll funds in an account | | | | be so close to the limit that making a transaction is not |
| via direct deposit and they are able to retrieve their | | | | possible. Among individuals in the U.S. with credit cards, |
| funds through their payroll card. | | | | more than 40 percent are within five percent of their |
| The issuance of payroll cards to employees is not | | | | credit limit. That means that the credit provided by the |
| completely new. The U.S. government, for example, | | | | card for a transaction has been basically exhausted. |
| maintains several contracts among the four branches | | | | The credit card is then working like a debit card since |
| of the military to provide an efficient, electronic means | | | | the user must pay down the limit on the card in order |
| of distributing funds to service men and women. This is | | | | to make a transaction. Making larger purchases |
| particularly helpful when those employees are | | | | requires a good credit score. Simply possessing a |
| overseas or aboard ships where access to banks is | | | | bank account does not necessarily improve a credit |
| limited or non-existent. By providing an electronic | | | | rating. |
| means of distributing funds, this eliminates the need for | | | | The credit-challenged need the opportunity to improve |
| currency, coins, vouchers, money orders, etc. | | | | their credit scores. Tom Miezejeski, Vice President of |
| In addition to the convenience of use, payroll cards | | | | Research for The PELORUS Group has indicated, |
| offer an added level of security. Typically, the cards | | | | "due to this situation, a possibility exists for a major |
| use a multilayered integrated chip, which controls | | | | shift from credit to debit cards. The potential intensifies |
| access to the funds. The chip is programmed with a | | | | when one takes into account the recent settlement by |
| user key or personal identification number (PIN). Funds | | | | Visa® and MasterCard® with regard to |
| cannot be distributed without the use of the PIN, which | | | | processing debit card transactions, which could |
| only the cardholder knows. | | | | encourage retailers to promote debit cards at the |
| From a much larger perspective, there are about 50 to | | | | expense of credit cards, thereby actually eroding the |
| 60 million people within the U.S. who do not have a | | | | number of credit cards issued annually." |
| traditional bank account. Many of these same | | | | Understanding Payroll Card Options: SVC's or Bank |
| individuals do not have credit cards either. We live in a | | | | Cards |
| culture that revolves around transactions; transactions | | | | In order for employees to participate in our growing, |
| that are, by design, quick and convenient. Individuals | | | | non-cash, transaction-based society and for employers |
| without a traditional bank account are unable to | | | | to capitalize on these trends, there needs to be an |
| participate in a large amount of transactions such as | | | | option that will allow them to leverage the flexibility of |
| general eCommerce, point-of-sale transactions, | | | | electronic fund distribution. Payroll cards address this |
| electronic payment to creditors, etc. Basically, anything | | | | need head-on for both employees and employers. |
| where cash is not either accepted or a viable option is | | | | There are a couple of offerings from vendors when it |
| simply not available to these individuals. More | | | | comes to payroll cards. The two main offerings can |
| importantly, individuals who do not possess a bank | | | | be categorized as either stored value cards (SVCs) or |
| account are unable to participate in traditional direct | | | | bank cards. |
| deposit offerings. | | | | First, let's explore a stored value card. Just as it |
| According to the Federal Reserve Bank of New York, | | | | sounds, it holds a stored value of funds that has been |
| there are approximately 20 million users of these | | | | associated with the card. Once loaded, or associated |
| types of cards and that number is expected to | | | | with a pre-determined dollar value, the card can be |
| increase to more that 49 million by 2008. Obviously, the | | | | used to make withdrawals from ATMs. To better |
| trend towards a greater level of acceptance is | | | | understand this option, let's look at the setup. The |
| growing. In 2003, these types of cards were used to | | | | employer sets up one major account with the bank |
| make $42 billion in transactions. By 2006, more than | | | | and each employee has access to what is referred to |
| $72 billion worth of transactions are expected. Experts | | | | as a sub-account under that one major account. |
| have indicated that the industry is in the introductory | | | | With SVCs, the employer directs funds through the |
| stage of its life cycle, which suggests that there is still | | | | major account and each sub-account, and then |
| substantial growth potential in the near future. | | | | maintains the balance for each individual employee. |
| Problems and Solutions | | | | The employee does not actually own the sub-account; |
| Currently, you may be offering a direct deposit solution | | | | they only withdraw funds from that account. The |
| for your employees. Direct deposit is a method of | | | | employee is not able to participate in point-of-sale or |
| payment to your employees which electronically | | | | retail transactions as one would with a true debit card |
| credits their checking or savings account or possibly | | | | or bankcard. Although the major account is FDIC |
| both. This is a service that you may provide as a | | | | insured, the sub-accounts are not individually insured. |
| benefit to your employees who have been with you | | | | For example, the Federal Deposit Insurance |
| for a defined period of time. Even though it may be a | | | | Corporation (FDIC) insures deposits up to $100,000.00. |
| benefit to your employees, it also provides a | | | | That means that if there are 100 sub-accounts for the |
| tremendous benefit to your organization. The benefits | | | | one major account, each one is only insured for |
| of such an offering include decreased processing time | | | | $1,000.00. The employee does not have much |
| for payroll, increased security as the funds go directly | | | | protection in the event the issuing or sponsoring bank |
| into an account, reduced fees for stop payment of | | | | fails. Also, most SVCs do not provide protections |
| checks, no lost checks, decreased employee payroll | | | | under Regulation E, which provides provisions for fund |
| issues, etc. According to the American Payroll | | | | replacement in the event of lost or stolen cards. VISA |
| Association (APA), these savings equate to | | | | branded cards, i.e. bank cards, and offer zero-liability |
| approximately $2.00 per contingent employee per pay | | | | policies. |
| period. | | | | Bank cards are similar to SVCs in that each is loaded |
| Many firms have the desire to move towards a | | | | with a pre-determined dollar value and can be used for |
| greater level of employee participation in direct deposit | | | | withdrawals from ATMs. There are, however, |
| since the efficiencies are proven and dramatic. The | | | | dramatic differences between these two types of |
| reasons for both employee and employer to find value | | | | cards. First, with a bank card the employee is able to |
| are obvious. But sometimes just encouraging the idea | | | | participate in any point-of-sale or retail transaction as |
| with your employees is simply not good enough. In | | | | one would with a true debit card or bank card. Second, |
| many cases, it needs to be a policy of education and | | | | the employer sets up an actual account with the bank |
| commitment to increase participation. However, this is | | | | for each employee who then has access to the |
| assuming that all of your employees can participate in | | | | account itself whereas with a SVC, the employee is |
| direct deposit. That may not be the case; take those | | | | accessing a sub-account under a major account. The |
| employees who do not have a checking or savings | | | | employer is responsible for directing funds to the |
| account, regardless of education or policy, these | | | | individual account. Third, the employee actually owns |
| employees cannot participate. | | | | the account and is able to build a credit history based |
| One new solution for firms desiring to increase | | | | on their use of the account which may lead to a |
| employee participation in direct deposit is what is | | | | greater level of financial independence. Finally, the |
| commonly referred to as Payroll cards. A Payroll Card | | | | individual account deposit is FDIC insured up to |
| is, in essence, just like direct deposit as funds are | | | | $100,000.00 and the employee can enjoy the |
| electronically deposited into an account that the | | | | protections issued under Regulation E. |
| employee can access. The major differentiator is that | | | | Conclusion: Better participation equals better service at |
| payroll cards can accommodate those employees | | | | lower cost. |
| who do not have bank accounts. | | | | If your organization would like to increase employees' |
| Major Benefits of Payroll Cards | | | | participation in direct deposit, the employees that do |
| For Employees: | | | | not have a bank account have traditionally not been |
| | | | able to participate. The un-banked employees now |
| 1. Funds are immediately available in account | | | | have an offering that will enable them to leverage the |
| 2. No approval needed; everyone is qualified | | | | benefits of direct deposit. By providing a payroll card |
| 3. No check cashing fees | | | | offering, these employees will be able to help your |
| 4. No waiting in lines to cash checks | | | | organization increase the percentage of participation in |
| 5. PIN protected; which provides added security | | | | direct deposit. If you wish to encourage your |
| 6. Purchasing power through POS vendors | | | | employees (banked and un-banked) to participate in |
| 7. No lost checks | | | | direct deposit, it is a matter of educating them on how |
| 8. ATM withdrawal | | | | to accomplish this and explaining the benefits in a way |
| 9. No need to carry cash on hand | | | | they can appreciate and understand. |
| 10. Funds are FDIC insured | | | | For more information regarding VCG, or our WebPAS |
| 11. Transfer funds | | | | and StaffSuite products, visit or call 800-318-4983. |
| 12. Pay bills online | | | | About VCG, Inc. |
| For Staffing Company Employers: | | | | Our focus is your success. Since 1976 staffing firms |
| | | | have counted on VCG, Inc. for staffing software |
| 1. Decrease cost of distribution of checks | | | | solutions that help them improve the productivity and |
| 2. Fills gap in direct deposit participation | | | | profitability of their operations. Founded by staffing |
| 3. Increases efficiency of payroll | | | | professionals and technologists intimately familiar with |
| 4. Decreases potential check fraud and lost checks | | | | the business of staffing, VCG is the staffing industry's |
| 5. Eliminates stop payment fees for lost or stolen | | | | largest and most experienced dedicated staffing |
| checks | | | | software development firm. VCG solutions today |
| 6. Timely payroll even when employees are away | | | | power hundreds of successful staffing companies and |
| 7. Provides major benefit at minimal cost | | | | 12,000-plus staffing professionals throughout the U.S., |
| 8. Improves employee loyalty | | | | Canada, Europe, Southeast Asia, and Australia. VCG, |
| Challenges for the 'un-banked' provide opportunities for | | | | C-PAS, StaffSuite, TempWare-V, WebPAS, |
| better service | | | | StaffSuite WorldLink, and WebPAS WorldLink are |
| There are not many categories that you can split your | | | | registered trademarks of VCG Inc. |