The introduction of direct deposit for weekly paychecks is arguably the most revolutionary thing to have happened to payroll in the last several decades. An astounding 82% of American workers are now paid via direct deposit, eliminating the need to go to the bank every payday. Employers also save money by no longer having to print and distribute checks. But what about those employees who do not have bank accounts?
This small but very real group of employees is known in the industry as the ‘unbanked’. They are workers who avoid the banking system because they do not like the associated fees and charges. Some are people who believe they don’t make enough to warrant having a bank account. Still others are non-natives who are unfamiliar with our banking system.
Regardless of the reason for not having a bank account, an unbanked employee cannot be paid via direct deposit. This presents a problem for employers who are required by law to find some comparable means of paying employees if direct deposit is not an option.
Printing Paper Checks
The old standby method of printing paper checks is always an option. In fact, this is the most common way to pay unbanked employees. For employers, writing paper checks is the most advantageous choice because it creates a paper trail proving that employees are paid what they are owed. Computer software that prints paper checks maintains accuracy and integrity.
Employees can take their paper checks to check-cashing facilities, department stores, grocery stores and other outlets to cash them. Though this solution is not ideal, it is workable. The downside is that non-banking entities that offer cashing services take a portion as a way of covering their own expenses. Employees cashing their checks this way do not get full value because they are paying significant fees.
Paying in Cash
Believe it or not, there are some employees who pay unbanked workers via cash. According to Dallas-based BenefitMall, the practice is fairly common in the construction industry. Other industries with large numbers of low-income, unbanked employees also use the cash option.
Paying in cash benefits employees because they get full value. They also don’t have to spend time running to a check-cashing store to get their money. As for employers, paying in cash is always a risk because of paper trail issues. Those who choose the cash option have to keep meticulous records at all times. They have to account for every penny going in and out of payroll to make sure there are no discrepancies. Even more importantly, employers paying in cash are not relieved of the responsibility of keeping records under the FLSA. Many mistakenly think they are.
A newly emerging option is something known as the payroll card. A payroll card is essentially a preloaded debit card that can be used anywhere major credit cards are accepted. Employees are issued a single card, which is then reloaded with every pay cycle. That card can be used to buy groceries, pay bills, etc.
This is the least desirable of the options for a couple of reasons. First, employees again do not get full value. There are transaction fees associated with the cards that can make them punitive to some degree. It’s not a good option for employers either. States are gradually cracking down on the use of payroll cards, asserting that they are not substantially equivalent to paper checks, cash, and direct deposit due to the fees involved.
Unbanked employees continue to be part of the American workplace. Thankfully, employers have multiple options for getting them paid.