Want to save at least $1 million this year? Wendy's/Arby's Group found a relatively easy way to do just that.
Last year, it piloted a paperless payroll system at Arby's locations in Atlanta, where the company is headquartered, and California, which was experiencing payroll shipping and distribution challenges. Participants were given the choice of being paid via a traditional check, direct deposit or paycard, which functions like a debit card. The program received such positive feedback that the company's senior executives decided to roll it out companywide within a six-month period.
Today, more than 54 percent of Arby's 26,000 employees have chosen direct deposit, says Scott Lummus, the company's director of payroll in Atlanta. He expects similar results with Wendy's, which has almost 50,000 employees, after its rollout is completed in July, since both fast food chains hire employees with similar backgrounds.
"Just on the Arby's side, we saved $500,000 in 2008," says Lummus. "I suspect Wendy's will be similar or reach the $1 million mark because we have more Wendy's stores."
Because of the potential for significant savings from eliminating the costs of printing and postage, more companies are replacing paper-based paychecks with direct deposit or paycards. Although changes to traditional pay practices can sometimes arouse skepticism or even fear among employees, the benefits of electronic payroll systems are too powerful to ignore. They're more accurate, convenient and green-friendly, not to mention less costly.
These systems can also reduce administrative headaches for employers. Consider escheatment, or the process of turning over unclaimed wages to the state: Although less than 1 percent of his company's employees never cash their paycheck, Lummus says, he no longer has to hold those funds for one year, as state law requires. Once deposited into employees' bank accounts or into paycards, his company isn't responsible for them anymore.
Paycards are also flexible. If employees forget to clock out or are missing hours, instead of waiting several days for their employer to cut a check and overnight it, their paycard can be instantly funded.
Besides paychecks and pay advice, more companies are turning to electronic payroll for delivering W-4 and W-2 statements and garnishment of employee wages for such things as child support, says Felicia Cheek, manager of the payroll advisory program at the Hackett Group in Atlanta, a global strategic advisory firm.
Recent research from Hackett suggests that electronic pay delivery may help top-performing companies achieve better results. Last year, the firm launched a performance study about payroll administration that surveyed 120 companies.
Cheek says 70 percent of the survey's top performers -- those that scored in the top 25 percent regarding efficiency and effectiveness -- distribute pay-advice statements electronically, compared to 50 percent of non-top performers. Likewise, 13 percent receive electronic child-support orders and modifications, compared to 6 percent of nonperformers.
In addition, the study found that top performers process payroll at a 46 percent lower cost-per-employee and 32 percent lower cost-per-payment, use 39 percent less staffing to administer payroll and have an overall error rate that's a full 1 percent lower than non-top performers -- 2 percent versus 3 percent.
"On Training Wheels"
Because some of Wendy's and Arby's employees don't have bank accounts, the company began working with First Data, based in Greenwood Village, Colo., which offers a prepaid card service called Money Network Solutions. The service houses payroll data on the firm's servers, creates paycards, distributes them to employees and ensures compliance with state payroll laws.
"One of the huge benefits of paycards are that there are many opportunities to utilize the account," says Lummus. "[Employees] can withdraw money from ATMs, make credit- card purchases with merchants and write checks to their landlord against their paycard. They're really a bank account on training wheels."
Wendy's/Arby's Group also prepared a paycard tip sheet for its employees. During the pilot, he says, his department learned many lessons about paycards. For example, at most gas stations, customers who pay for their purchases at the pump instead of inside the store will typically have a "hold" placed on their account that's greater than the purchase amount until the transaction is settled, a process that can take up to three days. Therefore, employees are advised to pay for their gas purchases inside the store.
In 2010, phase two of the company's pilot program will be launched, which will focus on the electronic delivery of paystubs and pay-advice statements. Lummus says alternatives are now being discussed, such as texting the information to employees' cell phones.
"This gives us the ability to get out of the printing and shipping business," he says, adding that at least another $500,000 in savings may be realized. "That's where our biggest cost savings is going to come from."
In addition to the efficiencies companies can realize by having direct deposit and other electronic payroll solutions in place, paperless payroll can also help organizations with compliance-related issues. The federal Office of Child Support Enforcement partnered with states, public and private employers and payroll organizations in 2004 to develop the Electronic Child Support Income Withholding Order Portal (e-IWO), which allows states, tribes and territories to electronically send income-withholding orders to employers.
The goal is to increase child-support collections, reduce arrears, slash administrative expenses and improve communication between child-support agencies and employers.
By the end of 2009, says Cheek, employers in 26 states will use the portal, which went live in 2007. The OCSE hasn't yet released any hard data regarding its economic impact on employers.
Within several years, Cheek believes there will be a one-to-one ratio between direct deposit and electronic-pay-statement participation. What's more, employers may start garnishing wages electronically for student loans and tax levies.
Until then, their focus is on electronic distribution of W-2 forms.
"A lot of companies don't ask employees for their participation," she says, explaining that they offer both paper and electronic versions of W-2s. "This is a slow trend and definitely contributes to savings of the bottom line in payroll costs."
Some companies haven't switched from paper to electronic because their infrastructure can't adapt to new platforms, says Cheek. Others simply can't afford to -- the technology investment is too costly.
But those that can haven't sat idle. In 2006, payroll at Rural King Supply became virtually paperless, says Jim Wilson, HR manager at the Mattoon, Ill.-based farm and home retailer, which has 2,500 employees in more than 40 stores across six states.
He points to direct deposit and electronic W-2 and W-4 forms, pay-status changes and state and federal tax forms as examples.
The company uses several different vendors. Sage Abra HRMS, based in St. Petersburg, Fla., hosts HR's central database and runs payroll. Unitime, from Boulder, Colo.-based Empower Software Solutions, records time and attendance. HR Actions by Delphia Consulting, based in Columbus, Ohio, enables managers to initiate, route, approve and submit online employee change forms, then digitally time-stamps them.
In the past, he says, employee performance reviews were falling through the cracks, leading to payroll errors and mounds of additional paperwork for HR. Staffing also became an issue as the company opened more stores. He says HR would have doubled its size -- from three to six employees -- had electronic payroll not been an option.
"The single most important benefit is how it impacts the guy on the working line," says Wilson. "Being able to more efficiently and accurately execute payroll ... means we take care of our employees better."
Similarly, InterMed P.A. had been using paper processes for payroll and time-keeping "forever," says Angela Dirsa Hansen, director of HR and compliance officer at the healthcare provider in South Portland, Maine.
Every two weeks, she says, payroll would spend hours correcting errors and scanning paper time sheets into its network to archive them. Not anymore.
They now access payroll information on its Intranet via Sage Abra HR and Sage Abra Payroll. All 453 employees have direct deposit and use the vendor's employee self-service system for viewing and printing pay stubs.
The next step is making payroll information available to employees on the Internet.
"We're finding we can do more with the same amount of staff," says Dirsa Hansen. "Our purpose was not to eliminate staff hours in payroll, but to avoid having to hire more staff in the future."