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Many businesses want to switch payroll from paper to electronic, but the process is not easy—especially when you are a national retailer. Big Lots is a 1,400-unit chain with stores in all 48 contiguous states and annual revenues near $5 billion. So Jared Poff, VP Treasurer, and Deb Montesanti, Payroll Manager, knew it would be a big challenge to introduce a pay card for its 40,000 associates.
Why Big Lots switched
Big Lots had wanted to shift from checks to electronic payroll through direct deposit and pay card solutions for a while. But it seemed like the pay card technology was not up to the treasury department’s expectations. But when Poff and Montesanti felt the technology was truly beneficial, they made the switch—focusing primarily on their 40,000 associates.
“A lot of what drove the project was our search for a way to save our associates money and time so they wouldn’t have to constantly cash a payroll check,” said Montesanti. “Another thing that really drove the project was finding a reliable delivery of pay on payday. Overnighting checks, as you know, is just challenging, especially when you’re spread out across the U.S. and there is weather, disasters, all kinds of things that can impact when checks get to our associates. And then of course, lowering payroll cost and our delivery cost was a factor as well.
Even though the technology had improved, Poff and Montesanti still faced challenges in rolling out the program. Though the pay card has just been introduced and results have yet to be determined, it was quite a feat just to get to the launch.
“I think it was buy-in from senior management” that proved critical, Montesanti said. “It required a lot of due diligence on our part to bring to the table the things that they wanted to see, such as showing how it would benefit our associates as well as any cost saving to the organization. We had many, many meetings, and many, many presentations to senior management to get the approval on the project, and this process lasted almost a year.
Getting stores to support the change also was critical. “Some of the vital buy-in partners across the business included our store operations folks because, obviously, the vast majority of our employees are out in our stores as well as our distribution centers,” Poff said. “Also our legal department, obviously, because there are quite few payroll compliance laws out there that need to be considered. Benefits and HR were also key, as well as finance.”
Conducting the search
To get management buy-in, Montesanti and Poff said it was important to find a provider that they trusted. “For starters, we limited the scope when searching for providers to people who had nationwide programs already on the ground in all 50 states,” Poff said. “It was vitally important to us that we were dealing with someone who knew how to operate within the boundaries of every state law that was out there. This had always been a major hurdle for our organization. We don’t want to have this give rise to some sort of compliance issue or other actions. So once we were able to show these programs are now out there, active, on the ground and have been for a while and being managed by some very large partners—that was a big difference versus what we’ve seen in the years prior.”
Other RFP requirements: The provider needed to have a deep stable of similar clients as well as a relationship with one of Big Lots’ large bank partners. “We did not want to be their biggest or their only client,” Poff said.
The fact that many Big Lots associates were un-banked increased the urgency of the change. “We know that our associates are out there utilizing check cashiers or cashing their checks in other ways that aren’t necessarily as beneficial to them as something like this could be. This was verified recently when we changed our payroll DDA account from one bank to another earlier in 2009,” Poff said. “Over the years, many of the check cashiers and other establishments who would cash checks for our associates had established our old DDA account as a legitimate account that was sort of pre-approved, indicating that this account was good.
"When we switched banks, all of a sudden, there was a new account number out there in ‘check cashing land’ that no one recognized and we were astonished by the amount of inquiries we received from these establishments when our associates were bringing in these payroll checks and trying to cash them.”
Choosing a branded card—in this case, Visa—also eased management’s concerns.
“It’s a Visa card with an appropriate fee structure,” said Montesanti. “Cardholders can pretty much easily find a nearby location at which to get cash at no charge, at no surcharge or anything like that.
Calculating the savings
Poff and Montesanti do not expect hard savings—yet. “Initially I think a lot of it is soft dollars,” Montesanti said. “It is changing the way we process and deliver our paychecks. At some point in time, there will be some hard-dollar savings. It’s not going to happen with the roll-out of the project. If we can actually get to the point where we are paperless, via this program and through direct deposit it will eliminate printing costs, paper, even delivery.
Another area of potential hard-dollar savings: postage. “Each week, we overnight a delivery to every one of our stores throughout the country with payroll in it so that we can meet the compliance required by several states,” Poff said. “And to Deb’s point, when we can get to the point of being completely paperless, we might just see that overnight cost go away, and that’s a hard dollar savings.
Big Lots has tied the pay card to direct deposit in its effort to promote electronic payroll overall. To facilitate this, it arranged with the 13 or 14 banks in its revolving credit facility to offer special Big Lots incentives to associates who want to open accounts with them, Poff said.
“We put together a really nice matrix showing the offered benefits from each bank so people can go and see what’s available in their neighborhood. Then, in addition to direct deposit, we are excited to be able to offer and promote the pay card as well,” he said.
Big Lots is executing a phased roll-out due to the sheer scope of its operations. “We want to test the waters,” Poff said. “So, Phase One, we’ve got a handful of locations strategically selected and we want to see how well our communications resonated with the associates? What was the penetration rate? Did we get the conversion rate that we wanted to see? And if not we can do a post-mortem and find out what worked and what didn’t before we move on to the next phases of the roll-out.”
Once the pay card program is up and running, Big Lots’ finance department anticipates being freed up some to focus on other matters. “It will permit my department, the payroll department, maintain the existing staff even though we’re growing as an organization,” Montesanti said. “Basically, just reallocate what our associates are currently doing which means that I don’t have to hire immediately, with the growth of the organization.”
Ultimately, Big Lots switched to help employees but adoption and success of the program is up to them. “Look at an electronic pay initiative through the eyes of the end user,” said Poff. “If you do it simply as a corporate initiative for SG&A savings, I think you are going to come up with a program that could be as much of a failure as plain vanilla direct deposit campaign.”
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