Two new ways to pay workers - money-order machines and 'plastic paychecks' - Small Business Financial Adviser - Brief Article

Nation's Business, August, 1996 by Peter Weaver

For the estimated 20 percent of American workers who don't have a bank account, payday can be a real hassle. These workers typically are young, and many are part-time; some are transients. They often have difficulty finding a place that will cash their paychecks without charging a hefty fee.

To solve this problem, two new payroll systems--one using money-order machines and the other using "plastic paychecks" (similar to cards used at automated-teller machines)--have been introduced in Chicago, Phoenix, and parts of Florida. These services are expected to be available in other sections of the country before the end of the year.

The "plastic" system is from Paychex, a payroll-service company based in Rochester, N.Y. The company is offering its customers' employees a choice: They can have their pay electronically deposited into their own bank accounts, or they can use a Paychex Access Card to withdraw cash from any ATM machine that's part of the Cirrus, Cash Station, or Honor systems. The employee's card allows access to a special account set up for the employer.

"It's similar to our direct-deposit service," says Gene Polisseni, vice president for marketing at Paychex, "put the money goes into [an employer's] account that's accessed through the ATMs."

"It's just the right solution for us because now our young employees won't need a bank account to deposit paychecks," says Daina Jaras, coowner of 2nd Hand Tunes, a Chicago chain of eight stores that sell compact discs, cassettes, and classic movies on video. The chain has 20 employees. "The new system doesn't cost any more than our old payroll service," says Jaras, "and it saves time and eliminates employee paycheck-cashing hassles."

Minneapolis-based Travelers Express, the nation's largest money-order company, is taking a different approach. After a test run in Phoenix, the company plans to offer retail stores using its Delta money-order machines--there are more than 44,000 around the country--the opportunity to pay employees with money orders processed by the in-store machines.

"The store's computer is directly connected to the Delta money-order dispenser and to the [firm's] payroll-service company by modem," says Jeff Wilcox, Travelers Express' vice president for business development.

Computerized records of employees' pay are sent via modem to the stores payroll-service company for calculation of tax withholding. Then, on payday, paychecks in the form of money orders are printed out through the moneyorder dispenser. Travelers Express and the participating stores' payroll-service companies provide the software for nominal fees.

"Employees like it because their pay is never late and money orders are easier to cash than regular paychecks," says Michael Larkin, manager of a Circle K convenience store in Phoenix.

--Peter Weaver

The author is a personal-finance writer in Bethesda, Md.