A growing number of people are no longer seeing paychecks these days.
No, the economy is not heading due south again, at least not yet. People who are working aren’t doing so for free.
Instead, some employers and several state unemployment departments have opted to use paycards for providing their employees or claimants with their pay.
What is a paycard, you ask? A paycard is a debit card issued by an employer or state agency which is loaded with the amount of pay that each person receiving pay earns every payday. The paycard is usually drawn on a debit card with a Visa or MasterCard logo, allowing the recipient to have easy access to funds even without a bank account. Fare cards such as the SmarTrip card used by the Washington Metropolitan Transit Authority’s Metrobus and Metrorail also use similar technology.
According to an article by John Edwards on the HR World website, the paycard’s ancestors included closed-loop cards used by university students beginning in the 1970s for meals, bookstore purchases and other expenses. With debit cards increasing in popularity since they were first rolled out by Seattle’s First National Bank in 1978, it makes sense that debit cards would be used to pay people who would use them to make purchases.
Edwards writes that the advantages for businesses and agencies who use paycards are obvious: They save money otherwise used to print paper checks and can save a recipient who doesn’t have a bank account the embarrassment or the inconvenience of having to go to a bank or a grocery store to cash a check. Paycards also reduce the likelihood of paycheck fraud, reduce or eliminate stop payment fees for lost or stolen paychecks and reduce or eliminate costs associated with bank services fees or account reconciliation.
Some employers who currently use paycards instead of checks include UPS, Washington, D.C. and Baltimore metropolitan area-based temporary agency Jones Networking, and Maryland’s Department of Labor, Licensing and Regulation’s Division of Unemployment Insurance. All three also allow their employees or claimants to receive their pay via direct deposit.
So what are the disadvantages of a paycard? You have to be vigilant where you withdraw cash if you use a paycard. You will incur foreign ATM fees if you use an ATM that isn’t connected with the bank issuing the paycard. Some places still require check payment, so people who receive their pay on a paycard have to withdraw money and deposit it into their checking accounts to pay expenses. Finally, some people still insist on receiving a paper check for a variety of reasons. According to an article on AmericanPayroll.org, insufficient funds fees have led some people to refuse to use banks.
Even with the potential for some people who are uncomfortable with paycards instead of paper checks, their prevalence is continuing to increase. Federal regulators added paycards to Regulation E, which governs electronic distribution of funds, in 2007. More states have started to completely replace paper checks with paycards or direct deposit distribution of unemployment benefits. Several states also load food stamp benefits onto debit cards for people who use that program. In addition, a recent report on WTOP 103.5 FM, an all news radio station based in Washington, D.C. indicated that by 2013, all Social Security recipients would either need direct deposit or a paycard to receive their benefits.
There may come a time when the paper check is no longer in use. That would make it harder for thieves to generate fraudulent checks after obtaining your account number and routing number. Until then, the paycard is a technological curiosity that is still on the rise.