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Payroll cards 4/23 AFP Treasury professionals are often charged with tasks & projects that look easy on paper but prove very challenging to implement & manage in practice. Converting employees from checks to an electronic payment mechanism for payroll payments certainly falls into this category. Employee attitudes & preferences, technological challenges & legislative inconsistencies constitute some of the challenges to implementing & running an effective payroll card program. Payroll cards are a common topic of conversation among retail treasury & finance professionals. Retail companies often have dynamic employee populations that consist of many part-time workers from many countries & constitute a critical mass of ‘unbanked’ employees. These factors facilitate the adoption of a payroll card program. I had the opportunity to discuss payroll card programs with Kathy Noble, Darden Restaurants. Payroll cards are often looked to as a means of improving the efficiency of payroll payments by reaching new employees who are part of the ‘unbanked’ population (those without a bank account) or those existing employees who have resisted enrolling in a direct deposit program where participants are paid via an ACH credit to an existing bank account. Payroll cards basically function like debit cards where each employee is issued a card which is loaded with payments that correspond to net wages. Payroll cards can be utilized at ATMs or POS terminals using the unique personal identification number that is associated with each card. Most companies in the retail industry face high employee turnover, & those who issue checks are required to generate a significant amount of checks weekly. These conditions almost in & of themselves provide the basis for the realization of increased cost savings & improvements in operational efficiency when converting from a check-based to an electronic-based payroll payment mechanism. Noble said these factors were the main drivers in their decision to implement a payroll program at Darden. It all sounds like good news when considering the adoption of a payroll card program, but there are several challenges that must be met in order to implement & effectively manage a payroll card program. These obstacles include choosing the features for the program that best align with the program objectives which must be a balance of employer & employee considerations, dealing with dynamic legislative & regulatory issues, & overcoming the administrative challenges of dealing directly with a diverse set of employees. The initial steps in setting up a program involve deciding which payroll card vendor to use & the specific features of your program. Will you issue branded or non-branded cards? What bank account structure will underlie the card program? How do you structure the program given the states for which your company has payroll? Branded payroll cards basically function as debit cards & are associated with a network such as Visa, Mastercard or Discover. Branded payroll cards are often referred to as ‘signature based’ cards as they afford employees the opportunity of signing for goods & services in addition to using them with a PIN. A branded payroll card is employee-specific & is embossed with the employee’s name. Non-branded (PIN-based cards) are debit cards that function only at ATMs or point-of-sale terminals & require the utilization of PINs. Non-branded cards may or may not be employee-specific depending on the preference of the employer & the specific program. The account structure underlying a payroll card program can be a centralized structure where there is only one master account into which a company sends one ACH transaction to fund an entire payroll run. Under this structure the funds are then distributed to a sub account for each employee. In a decentralized account set up there is a separate account for each employee & the employer feeds each individual employee account via an ACH transaction into each account for a payroll run. Converting from a check-based payroll system to a payroll card program can be beneficial to employees & employers. Employees can benefit from the possible elimination of check cashing fees, gain quicker access to funds with the elimination of mail float, and/or the eliminate the time & cost of going to the bank to cash or deposit a check. It was evident that employee considerations were important in driving the decisions that were made in regard to the set-up of the payroll program at Darden. When Noble was asked whether they chose a branded or non-branded card & why her response was ‘branded. The employees have more options for using the card & the employees love carrying a branded card.’ There are different laws that govern the utilization of payroll cards across different states. The design & implementation of a payroll card program which was consistent with the laws & regulations across all states in which Darden had payroll was identified as one of the biggest challenges faced by Darden. The challenge of adhering to relevant state laws & regulations did not go away for Darden after the program was implemented as these considerations are dynamic & need to be monitored. Once a payroll program structure is chosen the next step is the implementation of the program. The implementation process should begin with the formulation of an implementation strategy. Any project implementation without a well-defined implementation strategy is headed for trouble, but ‘hiccups’ for any project related to payroll whether they are rooted in communication with employees or the actual payment of compensation can be career-shortening for the individuals charged with leading the project. The formulation of an implementation strategy that addressed potential employee concerns in regard to the adoption of a payroll card program was a concern. ‘HR needed to approve implementation. We interviewed a lot of companies & had some good stats to share with HR leaders to assist in pushing the program forward.’ Providing a payroll program that causes no consternation to employees whether real or perceived is crucial as any concerns in regard to payroll. A payroll card program involves efficient administration & management. The administrative challenges to a payroll card program can be significant as the administration of the program often involves direct contact with employees. The absence of employee ‘buy in’ for a payroll card program can make efficient program administration challenging to say the least. When asked about the biggest challenges faced in efficient payroll program management & administration is that the level of employee understanding & buy in for the program has been a major area of concern. What is the one thing that a person needs to avoid or be wary of in the process of defining, implementing & managing a payroll card program? ‘Make sure you have management buy in & support.’ This statement just drives home the point home that any initiative dealing with payroll needs to be handled with extra care as your very career may hang in the balance.