Ask FERF about ... electronic wage statements.

In the age of the Internet and other rapidly advancing technological advances, many businesses still rely on paper-based reports and documents. Employee paychecks are no exception.

Financial Executives Research Foundation (FERF) has found that companies still distribute check stubs or non-negotiable replicas of checks to employees who have their pay direct-deposited. Moving away from paper reports toward an email or other electronic approach could reduce costs.

In the May 15 issue of Financial Executives List Exchange for Private Companies (known as (FELIX PC)--FERF's e-mail-based discussion forum for FEI members--one question related to whether members had experience in replacing employee paper wage statements with electronic statements. The member also asked whether there was an effective way of encouraging employees to move toward direct deposit.

The responses indicated that software packages and payroll vendors in the market currently provide the ability to produce electronic pay stubs. For example, ADP offers online statements, including a history of past statements. Ultipro payroll/personnel system, which also provides online deposit advances, is Web-enabled and sends automatic email messages to each employee on each pay date. This message includes a link for viewing the payment online and for printing a pay advice.

Another member company uses Ceridian Self-Service, and says that employees can access pay stubs over the Internet, as well as change their home address, update their federal W-4s and calculate "what-if" scenarios on payroll changes. It took about three to four months for the company to transition to the new system, after which it stopped issuing paper checks.

Another company uses Paylocity. At the end of each payroll period, the payroll accountant sends out a mass email with instructions on how to access pay information online. Using a personal password, employees can access the prior period's wage statements as well as W-2s.

Companies can also consider a vendor such as National Payment Corp., which can facilitate the transition to electronic employee statements. This type of vendor can be used in lieu of purchasing an addon module to an existing payroll system, which may require costly interfaces.

Going Electronic

Even with these trends, however, members noted that several factors--including employee preference and behavior--often prevent a company from going completely paperless. Some states, like California and Pennsylvania, have laws that make it illegal to make electronic pay stubs mandatory. If employees in these states request paper pay stubs, companies have to give them paper.

One California-based company plans to roll out paperless for all employees by the summer or fall but will still give its California employees the choice of opting out of electronic pay stubs.

Companies can encourage direct deposit by highlighting the shorter turnaround versus paper checks--particularly for employees at remote locations, where checks are often delayed by the weather. An electronic deposit can get to the bank when paper cannot.

One member recalls: "We communicated that employees could periodically experience delays in the delivery of paper documents (we pay from one central location), and that electronic deposit and online printing of pay advises would guarantee that the pay would be in one's checking account on the payroll date. After the original implementation, we did experience two delays in the delivery of paper checks and took the opportunity to reiterate this warning. Each time, more people opted for direct deposit."

For employees that may not have a checking account, direct debit cards could be prepaid with an employee's wages, reimbursements and other payments, a feature available from National Payment. This feature helped one company serve both its U.S. and overseas employees.

Though there are still some paper holdouts, with the online capabilities offered now, companies have seen a dramatic drop in the number of paper checks issued to employees. One company is down to 17 of about 1,000 employees, while another is down to 250 paper checks out of a total of 4,000.

Evaluating Payroll Debit Card Programs

According to Optimum Pay Inc., a California-based electronic data exchange company, payroll debit cards use host-based stored-value technology, which permits the value associated with the card to be stored and authorized centrally on a host computer system and not on the card itself. The card is linked to a virtual account that manages the card's credits and debits in real time, preventing the account from being overdrawn.

Optimum Pay suggests you consider the following factors before evaluating a payroll debit card program: Company size and number of employees, percentage of employees on direct deposit, number of employees with and without a bank account, geographical distribution of workforce, employee turnover and mobility of the workforce

Cheryl de Mesa Graziano, CPA ([e-mail]), is Vice President, Research and Operations at Financial Executives Research Foundation (FERF).

contributed by FERF