Payroll Alternatives: Pros and Cons
With campus leaders looking to streamline operations and save resources, electronic payroll options are very appealing. The printing, envelope stuffing, and mailing costs associated with paper checks make them an administrative burden, says Anthony Peculic, senior director of product strategy at ADP.
Electronic payroll is also environmentally friendly, Peculic adds. And, it might continue to function during an event such as Hurricane Sandy, which created issues with the delivery of goods on the East Coast this fall. With alternatives to mailed checks, employees can have access to their earnings right away. “If employees aren’t getting paid, they aren’t happy,” he notes.
An added benefit of switching to electronic payroll disbursement, which could include a prepaid or debit card that may be ideal for employees who don’t use banks, is the ability to offer more options in receiving pay. Leveraging financial aid refund solutions to offer student employees electronic payroll can also be an option.
Students use many tactics to pay for college, including work-study jobs. Since attending college is often the first time students are navigating the adult world on their own—including managing their finances—they might be unprepared to receive and process a paycheck.
“You get into safety and security issues,” explains Doug Schantz, the director for the office of student accounts at
Wittenberg University (Ohio). “You might have students carrying around checks worth hundreds or thousands of dollars. Then they end up carrying around the cash.”
“The business officers we’ve spoken with are very conscious of the fact that if they are giving students a live check there is a good chance they might have to go to a check cashing place,” says Don Smith, vice president of client communications at Higher One. In addition to the fees associated with a nonbank check cashing service, he points out, if students lose the resulting cash, they can’t get it replaced. “If it is in an account, it’s safer.”
An extension of Higher One's OneDisperse solution, OneDisburse Payroll allows students to accept direct deposit into a OneAccount or any domestic bank account. With another option, the ADP ALINE Card, funds are in a pooled account for which users have a unique routing number, allowing them to both access their money and make deposits. Neither account allows users to overdraft.
But students might not be the only ones struggling to manage a paper paycheck. Smith points to the bi-annual “National Survey of Unbanked and Underbanked Households” from the FDIC as a basis for concern. According to the 2011 report, more than one in four households are either unbanked or underbanked, conducting some or all of their financial transactions outside of the mainstream banking system.
“That doesn’t give you a true picture of the number of people because they were looking at the whole household,” says Smith. “Maybe you have two [young adults] who are unbanked, but the parents aren’t. Depending on the population and the geographic location, the number can fluctuate greatly.”
People who don’t work in the payroll industry may well assume everyone has a bank account, Peculis says, adding that they may also not realize this is a campus issue.
A variety of factors caused campus leaders at Wittenberg to start looking for alternative options back in 2005, shares Schantz. First and foremost were the issues related to issuing paper checks, either for payroll or financial aid, including “stale dates” from checks not being cashed in a timely manner and checks getting lost or mutilated. It’s like “the dog ate my refund,” jokes Schantz.
Electronic deposits were becoming mainstream then, and he recalls parents asking about the option during every orientation session that year.
The last straw was the workload associated with paper checks. “We realized we were writing about a thousand checks a month over the course of the year. In 2005, we were doing about $1.5 million related to student payroll,” he says. “That didn’t include the checks we were doing for refunds.”
After reviewing several options, campus leaders signed on with Higher One. Student adoption was high from the start Schantz says, with just 6 percent of students sticking with the paper check option the first year the electronic option was available.
“The message is, ‘any funds you receive from the university will come in electronic form and this is how you sign up for
it,’ ” he explains.
While the solution is really directed at students, faculty and staff can also take advantage since the accounts are linked to campus ID cards. Schantz directs a portion of his paycheck to his OneCard for easy access to funds for items such as buying lunch on campus.
Such options would likely be appreciated by the unbanked or underbanked employee. The FDIC survey found that about one-quarter of the 45,000 households surveyed, including all of the underbanked households and 64.9 percent of unbanked households, had used alternative financial services in the last year. Those services include nonbank check cashing, payday loans, and prepaid cards. Students and staff using these options to access their pay can end up with high fees.
Employers are aware their employees might be losing a portion of their paychecks to these services and want to help them avoid that, believes Peculic. “If you are living paycheck to paycheck, paying $5 a month to keep a [consumer] prepaid card is a lot of money.”
The prepaid cards students might purchase at the grocery store often have an activation fee and a monthly maintenance fee. That is usually not the case with payroll prepaid cards and is something to consider before selecting a solution.
Another advantage of the vendor-issued prepaid payroll card: There are usually protections in place if the employee’s card is lost or stolen.
When looking for a similar solution, campus leaders might be able to leverage existing relationships rather than starting from scratch. For example, while the Blackboard Pay offering is intended to handle financial aid credit balances, “those accounts lend themselves to the receipt of any type of funding,” says Jeff Staples, vice president of product development for Blackboard Transact. “We do have several clients who have gone on to leverage the accounts for payroll.”
Campuses encourage adoption of the accounts through campaigns during orientation and other campus activities, Staples says. The campus offices that will be using the accounts, either financial aid or payroll, are involved in making students aware of the option, as well. He says he believes campus leaders are finding Blackboard Transact useful because there are few general banking service options that offer very low costs from the beginning.
Peculic cautions that not every bank provides prepaid cards, so using a vendor-provided solution—with its associated bank—can make life easier for campus staff.
But paycheck alternatives are not all sunshine and roses. Bringing to mind the Mark Twain quote about statistics, Dan Toughey, president of TouchNet, which provides higher ed commerce solutions, refers to the same FDIC report with different results.
“The unbanked thing is completely blown out of proportion,” Toughey asserts. “[According to the report,] 8 percent of adults don’t have an account, but 75 percent of them haven’t gone to college. The unbanked population might not be who is on campus.”
While acknowledging that the percentage of unbanked students depends on the campus population, he believes that overall, it’s a small percentage of the student population. “The best option for sending people money is direct deposit. It’s safe, fast, effective and goes into the bank account you picked,” he contends.
Hinting at the student loan scandal from a few years ago, Toughey suggests it might be better for colleges and universities to stay out of the banking business. Campus leaders should not have to worry about selecting a bank and vetting its fees or ATMs, he says. “Make direct deposit the policy and then deal with those who don’t [have a bank] as the exception.”
Toughey makes the argument that there is a difference between handling a financial aid refund check, which must comply with government regulations, and distributing payroll funds to an employee. He explains, “You can look at someone and say, ‘If you are going to be getting payroll, then you need an account.’ ”
College and university leaders who do decide to direct students toward particular banking options should ensure tools are provided for educating students about how to use banking products, he suggests.
“It’s a minefield today,” Toughey cautions. “There is a lot of concern around students and money in higher education. I think the more you can stay away from being a middleman for a bank, the better off you’ll be.”
Another hot topic in recent newspaper reports has been the fees associated with campus cards. Education is key to helping students manage those fees. “Either the school pays the issuer of the card, or the student does. Someone pays fees,” Toughey points out.
Staples says Blackboard gets a small amount of the merchant transaction fees, but nothing from the students.
Schantz explains that the Wittenberg One card is meant to be a free option for students, and that fees can be avoided when users plan ahead. “I’ve used mine for five or six years and never had a fee.”
According to Smith, campuses using OneDisperse will see a subscription fee or a per-transaction fee, but those fees will still be less than the cost of using paper checks. He suggests that students review different accounts, along with their associated fee schedules, and consider their banking habits before selecting any banking product.
Peculic also points out that careful planning will allow users to avoid fees from using prepaid cards, and reiterates that he believes that prepaid cards received from the institutions are a more affordable option than consumer prepaid cards.
“Regardless of how you pay someone, there is a charge for sending someone money,” Peculic points out. Providing electronic payroll, either through direct deposit or prepaid payroll cards, saves both the institution and its employees money.