NEW YORK Prepaid payroll cards benefit both workers and their employers

The cards are more cost effective than paper checks.
NEW YORK (Dow Jones/AP) -- A growing number of workers are tapping their benefits or even their pay with the swipe of a card.
As a way to cut costs, employers are rolling out a variety of "stored value" or prepaid cards that employees can use to spend their paychecks, cash bonuses, flexible spending accounts and other fixed allowances.
Saving money
For employers, the savings of payroll cards can be significant. U-Haul International Inc., which started offering Bank of America Corp.'s cards two-and-a-half years ago, estimates that it saves about $500,000 annually by issuing electronic payments instead of paper checks.
Every paycheck costs employers between $1 and $2, compared with 20 cents for direct deposit, said Andrew McDevitt, American Payroll Association's manager of government relations.
Payroll cards are also a way for businesses and financial-services firms to target those who have no bank accounts -- students, part-time or low-income workers. At least 14.2 million households fall into this category, said Ariana-Michele Moore, an analyst at Celent Communications, a Boston research firm. About 12.4 percent are expected to have payroll cards by the end of 2004, up from about 8.5 percent last year, she said.
Payroll cards are convenient for employees, but consumer advocates say it's important to watch out for any fees. Users typically pay a monthly service charge and ATM withdrawal fees -- although proponents point out that total fees on average are still lower than many check-cashing services. Employees also won't be able to build up their credit or earn frequent flyer points.
"The main risk is in having a meager paycheck eroded by ATM paycheck fees," said David Heim, deputy editor for Consumer Reports. "You don't realize that you're paying a very high price for this convenience."
Incentives
Meanwhile, corporations are handing out incentive cards -- a market Visa USA estimates at $125 billion -- to employees for meeting sales and performance goals.
Trey Rodgers, a 32-year-old sales manager for Browns Fairfax Mazda in Fairfax, Va., said that dealer salespeople used to have to wait up to two months before they got bonus checks from Mazda. Now, bonuses are reflected in accounts linked to incentive cards within a week to 10 days of making a sale. Rodgers, for example, saved up bonuses on his incentive card until he was able to buy his wife a pair of diamond earrings as a present last Christmas.
Separating incentive dollars from pay serves another purpose. "If you put that [bonus] into someone's paycheck, the value tends to get lost," which is why some companies still hold onto recognition programs such as catalogs and gift card plans, said Patricia Loria, vice president, research and development at MasterCard Inc.
Ecount, which provides the cards to many auto manufacturers such as Mazda, has issued about 1 million cards, most of them for incentives. It expects to distribute 40,000 cards a month on average this year, said Matt Gillin, president of the Conshohocken, Pa., company.
Spending accounts
Another type of debit card that's gaining traction is a card that lets employees spend money in their flexible spending accounts -- employer-sponsored plans that let workers put aside pretax money from their paychecks to pay for medical costs that their insurance doesn't cover. Visa, for example, offers FSA cards to about 50 companies.
Meanwhile, more employers are also interested in giving workers prepaid cards for general business expenditures. Instead of requesting a cash advance, employees who travel infrequently can use prepaid cards to pay for hotel rooms, and meeting planners can use the cards to reserve conference facilities.
Other companies use supply-chain incentive cards as a way to distribute marketing and advertising dollars to their suppliers, said Loria. A company might give the cards to its distributors, who would use the cards to pay for advertising or to manage co-op programs; franchisers might use the cards to give incentives to its franchisees, she added.
Government agencies also are expressing interest in project cards, since the cards could enable project managers -- who are often under pressure to make sure funds are spent appropriately -- work within a budget and track expenditures, Loria said.