The pandemic has spurred businesses — by necessity — to use digital means to interact with their employees and to keep operations humming.
And the great shift to digital is also changing the way employers are paying their employees.
As Laura Valdespino, director of compliance solutions at ADP, told PYMNTS in a recent interview, using digital channels, and specifically, pay cards, can actually improve the employees’ pay experience over paper-based methods that have been in place for decades.
“Employers are trying to figure out how to pay people, and we are in an environment where we are all working from home,” she told PYMNTS. “How do you pay those checked employees when, traditionally, you would hand them a physical check at the end of the day?”
With most folks working from home, she said, there has not been anyone around to even physically cut the checks, much less mail them out.
The result: friction on both sides of the equation.
As employers move toward digital payments, they need workers’ consent to do so — and may still be required to send out costly paper checks in the interim.
Then there’s the friction that is rooted on the employee side, tied to health concerns.
As Valdespino said, “The employees don’t want to wait for the check. They don’t want to touch the check. They don’t want to physically go to the bank to cash the check. And, they really don’t want to touch the cash.”
The friction is especially acute, she added, when employees don’t have traditional bank accounts or have gone to alternative payment providers and check cashing outlets to get access to their funds, which means people must pay to access their wages.
Before the pandemic struck, she said, pay cards were potentially “just another choice” for the employee. Employers, she said, may not have understood the real value and not placed emphasis on that option through communication or advertising campaigns.
In addition to improving the safety, savings and convenience factors, pay card offerings also have features that help consumers budget their spending, access digital wallets and take advantage of cash back rewards programs.
Now, as a result of the pandemic and the need for digital access to pay, she said, “we’ve seen more of a push” by employers to train a spotlight on pay cards which benefit both employers and employees.
While firms and workers are pivoting to embrace the great digital shift — and satisfy employees’ demand for contactless, digital payments — the regulatory landscape has not kept pace.
“Regulations are still where they were pre-pandemic,” Valdespino said.
Against that backdrop, many states still mandate that firms offer paper checks as a payment option. Regulations tend to vary across states, leading to a “patch quilt” of payment offerings.
“There are a few states that still require a check has to be a payment option on a consent form when you are onboarding,” said Valdespino.
Other states mandate varying timeframes around obtaining consent or notifying employees of the payment option, which means it can take days or weeks to get employees paid.
The shift to digital payments carries other regulatory challenges, said Valdespino, tied to security and compliance. The Bank Secrecy Act stipulates that banks verify end customers’ true identities.
It’s traditionally been incumbent on the employer to verify drivers’ licenses, passports or I-9s in the course of determining that an individual is indeed eligible for employment — and for the financial institution to verify the identity of each end customer.
“Employees have walked in with those things, and the employer has made copies of them,” she said.
But now, many firms may be hiring people remotely, and never seeing the individual’s face — except, perhaps, on a Zoom call.
She said it has become imperative for companies to leverage digital verification services (like those on offer through payroll solutions providers such as ADP) to onboard employees and to make sure firms are compliant on a state-by-state basis.
“Employers are stating that they want out of writing checks” said Valdespino. “And they can show employees that ‘I can safely pay you quickly, in some cases instantaneously.’”