Fwb. 23, 2004
By Stephanie Armour
Gannett News Service

More employers are replacing traditional paychecks with payroll cards, a new type of system that allows employees to get money out of cash machines, instead of cashing checks.

Instead of getting a paycheck, employees can opt to get cards that are credited each pay period with their wages. Workers can use the cards to withdraw money from automated-teller machines or they can use them like a debit card to make purchases.

Some users have to pay a transaction fee or monthly charge for the cards. In other cases, fees are waived. Employees who use the payroll cards often get a paper or electronic pay stub with wage and tax information.

The use of such cards is expected to grow quickly. Over the next year, about 50 percent of employers plan to evaluate the benefits of payroll cards for their companies, according to a survey by the American Payroll Association. Already, major employers such as Sears, McDonald's, Blockbuster and Domino's use payroll cards.

But some critics say the cards are bad for employees, because workers may be charged fees for accessing cash. Some say such cards don't give users the chance to save as they might with a bank account. The cards also may not have the same consumer protections as other debit or credit cards if an unauthorized user gets hold of them.

"We see payroll cards contributing to a second-class system of consumers," said Ed Mierzwinski at consumer advocacy group U.S. Public Interest Research Group. "The companies are just trying to save money. Companies ought to leverage their power to force banks to offer affordable accounts."

The benefit for employers is cost savings. Because there's no need to cut paper paychecks, fewer payroll employees are needed. Paper paychecks cost as much as $2 each to issue. For employees, there's no need to cash checks at banks or check-cashing centers.

The cards are targeted to employees who don't have bank accounts and can't use direct deposit. About 8.5 percent of the 14 million households without bank accounts used payroll cards in 2003, according to Celent Communications in Boston. That's expected to jump to roughly 25 percent of the homes without bank accounts in 2006.

"They're really great for people who don't have a bank account," said Ariana-Michelle Moore, an analyst at Celent. "We're seeing strong demand."

At Sears, about 6,900 employees get a pay card out of a work force of 220,000. It's part of the overall push by Sears to move to paper-free paychecks.

"It allows them to be paid the way they want," said Chris Brathwaite, a spokesman at Sears. "They like the freedom."

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