This year, more people will be paid with paycards than paper checks, according to new research from Aite Group. By 2019, the study predicts, the number of workers compensated via paycard will jump from 7 million up to 12 million while those who receive paper checks will plummet from 6 million to 2 million.

The shift comes as more and more employers are recognizing the advantages of distributing paycards rather than paper checks, for both themselves and their employees. For businesses, paycards represent a massive savings opportunity, costing about $0.35 for a payroll deposit, compared with $2.00 for a paper check, according to a study released by the New York Attorney General's (NYAG) office last year. Researchers also found that employers that switched to payroll cards saved as much as 65 percent in their payroll costs.

For underbanked employees, payroll cards can be a convenient and inexpensive way to access earnings. Analysts in the NYAG report found that payroll cards "are not subject to minimum balance or creditworthiness requirements, which can be difficult for some workers to fulfill." 

While the paycard movement is growing, however, recent lawsuits in several states are looking to hold businesses accountable for the way they go about administering direct deposit paycards. Most notably, class-action lawsuits in Pennsylvania and New York have pitted McDonald's franchise owners against employees who don't want to be paid via paycard, bringing a debate on the lawfulness of paycard compensation to center stage. 

In Pennsylvania, Judge Thomas F. Burke Jr. ruled that the payroll cards did not qualify as "lawful money of the United States," citing the state's Wage Payment and Collection Law (WPCL). Under the WPCL, a payroll card can only be turned into "lawful money" through a bank or ATM.  However, the decision is still up in the air, as it's now certified for an appeal to the Pennsylvania Superior Court. Burke explained that while a payroll card is a per se violation of the WPCL, "reasonable minds can differ," according to reports published by Seyfarth Shaw LLP.

In the case currently underway in New York, however, McDonald's payroll card system is holding up much better. Seen as an important way to help underbanked employees access more of their earnings, lawmakers are working on ways to curb the fees associated with the cards, paving the way for the continued growth of their adoption, according to  The New York Times. 

The Times reported that the New York State Department of Labor proposed new rules that would limit the fees imposed on paycard users at ATMs, including requiring the cards be linked to at least one ATM network that will not charge a withdrawal fee. The rules would also require employers to add  the option of getting paid by paper check or direct deposit. 

As it turns out, this combination of providing choice and emphasizing the ways employees can access their money for free is key for employers looking to pay their workers with direct deposit payroll cards. To avoid the trouble McDonald's is facing, employers must not mandate that all employees be paid this way and must be sure to fully explain the options and fees to them. With Vantage's paycard solution, for example, employees incur no fees for point-of-sale debit and credit transactions or for cash back at retailers. In addition, cardholders can make a withdrawal of any amount, up to their total balance, at any Visa bank once per pay period at no cost. 

Working closely with a knowledgeable payment company's sales team can help employers navigate state-specific paycard legislation. In addition, a good paycard company will provide employers with materials they can distribute to their employees, educating them on the best ways to use the cards. 

To learn more about paycards visit www.vantagecard.com/paycards or contact [email protected] with specific questions.