Dodging the Potential Pitfalls of Paperless U.S. Payroll: 3 Tips
Nov 3, 2016
Now that cloud-based technology makes it easier than ever for organizations to streamline their global payroll processes, many multinational companies want to extend the benefits of end-to-end digital payroll as far as they can. For some, that means cutting the traditional end product of the payroll cycle – printed paychecks – out of the process as much as possible.
The benefits of going paperless with payroll are obvious; lower mailing costs, simplified digital record-keeping, and reduced labor (around printing and distribution) are just a few of the advantages. As such, the percentage of employees who opt-in to paperless payments – aka, the ‘Paperless Payment Distribution Rate’ – is a commonly measured metric for organizations aiming to achieve top-tier payroll performance.
But even though direct deposits and digital paystubs have been around for years, there remain a variety of legal risks, technological considerations, and other concerns associated with paperless payroll – especially in the U.S.
When multinational companies headquartered abroad expand into the U.S. market, they often find it challenging to comply with the variety of rules and regulations involved with digital-first payroll. To avoid obstacles on the road to a paperless payroll environment – and to achieve best-practice performance with paperless payroll in North America – payroll managers are wise to keep the following pieces of advice in mind.
1. Ensure Enhanced, Accessible ESS is Available from the Outset
Research from the Electronics Payments Association and the American Payroll Association (APA) has found that businesses save between $2.87 and $3.15 per pay run by paying employees electronically instead of by paper check – and they save another $1.20 by providing pay stubs online. To realize those cost benefits, organizations may be eager to require all of their global employees to participate in a paperless payroll initiative.
But without the right technology tools, an “e-paychecks only” mandate is unlikely to go far in the U.S. payroll environment. Take Starbucks, example: In a 2010 consulting engagement, Hackett analysts urged the company to mandate direct deposit wherever possible among U.S. and Canadian team members. But because employee self-service (ESS) functionality was only available on Starbucks’ store-bound company computers at the time, staff members who went paperless weren’t able to access their paycheck information off-site – thus damping employees’ enthusiasm for electronic distribution of pay statements.
As you increase your investment in paperless pay across the enterprise, ensure your employees enjoy the appropriate level of ESS functionality necessary. At the very minimum, your North American staffers should be able to maintain their personal details, update their direct deposit or payroll card preferences, modify their voluntary deductions, and access their pay stubs quickly and easily – ideally from any location or device.
2. Check the Boxes on Consent, State Administrative Guidance, and (Yes) Printer Access
U.S. wage laws place a variety of antiquated – and in some cases, unclear – burdens on multinational companies when it comes to paperless payroll. Before even attempting to implement electronic pay across your enterprise, you should be mindful of the following specific considerations.
- Laws in over a dozen U.S. states require written authorization from employees to establish payment through direct deposit. Even though the laws fail to delineate what kind of consent counts as “written,” electronic signatures do satisfy the authorization requirement.
- In Illinois and several other states, employers are required to give employees the option of payment by hardcopy paycheck or cash – which means that mandating direct deposit participation is entirely off the table. (In fact, because "unbanked" workers tend to come from protected minority groups, programs requiring direct deposit often run afoul of federal and state anti-discrimination statutes.)
- Mandating electronic wage statements is off the table entirely, as it is expressly barred under the laws of all 50 states and the District of Columbia.
- And in perhaps the most peculiar consideration, a number of states (including California, Michigan, and Oregon) stipulate that electronic pay or wage statements are allowed only if employees have the ability to print out statements, at no charge, at the time the wages are paid. Avoid unnecessary compliance issues by ensuring your team members can print paystubs without issue.
3. Exercise Caution When it Comes to Payroll Cards
In those U.S. states that don’t require employers to offer paper-check or cash-payment options to employees, companies can offer payroll cards as a paperless alternative to direct deposit. A payroll card is a prepaid, reloadable card – issued by a bank network or specialized fintech company on behalf of an employer – that companies can use to deliver employee wages.
The cards are an obvious fit for paying unbanked or underbanked employees, but their popularity has extended much further than that: The number of payroll cards in circulation has been estimated as high as 17.5 million, and $30.6 billion was loaded onto payroll cards in 2013. A recent study found that 86 percent of payroll cardholders prefer being paid via paycard over a paper check.
But as paperless pay instruments, payroll cards come with some pre-existing consumer protection concerns because they often carry fees or institute penalties for using ATMs, maintaining low balances, or otherwise. 2015 research found that just 75 percent of employers explain payroll card fees to employees – leaving 25 percent of payroll cardholders in the dark on potentially damaging charges.
If you elect to make payroll cards part of your paperless payroll program, investigate the associated charges carefully and ensure your employees are aware of them. In addition, be certain to cover your bases on compliance: U.S. requirements stipulate that that the funds underlying any paycard payments are FDIC-insured and require the cards to adhere to the same protections as traditional debit cards under the Federal Reserve Board’s Regulation E.