Electronifying the HR Process:Payroll, FSA and HSA Cards

August 22, 20072007 Copyright BB&T. All rights reserved.

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Today’s Speaker: Scott QuallsScott Qualls has over 26 years of experience at BB&T in payment processing, credit risk management, targeted marketing, product development and sales. He has been in his current role for almost 10 years, and is a respected thought leader, both at BB&T and throughout the industry. Through Scott’s position as Senior Vice President of Deposit Access Products, he leads a team that is the driving force behind the products that help BB&T’s business and retail clients electronify their payments. Deposit Access Products include retail and business check cards, payroll cards, gift cards, benefit payment cards, direct deposit, money transfer cards and online bill payment. Deposit Access Products has issued over 2.6 million cards and processes over 400 milliontransactions valued at more than $25 billion per year.

Scott also represents BB&T through various payment industry associations including the Network Branded Prepaid Card Association, Visa Debit Product Council and Electronic Funds Transfer Association Board of Directors, where Scott has served as Vice Chairman and Treasurer.

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Agenda

Why Migrate HR Processes from Paper to Electronic?Payroll Process― How does a Payroll Card work?― What are the benefits to my business?― Case study

Healthcare Process― What is an FSA/HSA?― What are the benefits to my business?― What is an FSA/HSA Card?― Case study

Questions and Closing Remarks

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Why Migrate HR Processes from Paper to Electronic?

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Migration from Paper to Electronic: Emerging Electronic Payment Value Propositions

Emerging electronic payment products require new specialized services and technology. It’s not a check card.

New product innovations support business process re-engineering

Business Value Proposition

• Cost Reductions• Faster Processing of Disbursements

• Greater Control• Less Fraud/Risk

• Improved Experience for Constituents

Cardholder Value Proposition

• Superior functionalityto Existing Product

• Greater Security than Checks or Cash

• Reduced Cost

• More Convenient• Prestigious• Enables Entirely New

Payment Options

Healthcare:Healthcare:FSAs, FSAs, HSAsHSAs

Teen and Teen and Youth CardsYouth Cards

Gift CardsGift Cards

Money TransferMoney Transfer

Payroll CardsPayroll CardsGovGov’’t Disbursementst Disbursements

Incentive CardsIncentive Cards

StrategicStrategic CommodityCommodityRelationship TypeRelationship Type

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Business Value Proposition

• Cost Reductions• Faster Processing of Disbursements

• Greater Control• Less Fraud/Risk

• Improved Experience for Constituents

Cardholder Value Proposition

• Superior functionalityto Existing Product

• Greater Security than Checks or Cash

• Reduced Cost

• More Convenient• Prestigious• Enables Entirely New

Payment Options

Migration from Paper to Electronic: Emerging Electronic Payment Value Propositions

Healthcare:Healthcare:FSAs, FSAs, HSAsHSAs

Payroll CardsPayroll CardsGovGov’’tt DisbursementsDisbursements

Incentive CardsIncentive Cards

• Electronic claims substantiation

• Contributions save on wage taxes

• Electronic claims substantiation

• Contributions save on wage taxes

• Load value through normal payroll transmission process (ACH)

• Reduce cost• Improve functionality for

employer and employee

• Load value through normal payroll transmission process (ACH)

• Reduce cost• Improve functionality for

employer and employee

StrategicStrategic CommodityCommodityRelationship TypeRelationship Type

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Migration from Paper to Electronic: Benefits of Electronic Disbursement

Benefits to Employers― Reduced costs― Reduced risk of check fraud and lost or stolen payroll checks― Timely payment of salary, even when employees are out of the office

due to vacation, business travel, inclement weather or a natural disaster― Reduced bookkeeping/reconciliation because of immediate payments

into employee accounts (no lost checks, delayed check cashing, etc.)Benefits to Employees― Saves money vs. cashing checks― Timely depositing of pay― Deposited funds available immediately― Eliminates chance of losing checks or having checks stolen― Payments can be divided among designated employee accounts― There is no cost to employees for direct deposit― Expected part of employee benefits package

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Webinar Audience Question #1What percent of your employees are using direct deposit?

0-20%21-40%41-60%61-80%81-100%Do not offer direct deposit

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Migration from Paper to Electronic: Strategic Response

Direct Deposit― 98%* of all companies offer direct deposit to their employees― 65%* of all employees receive direct deposit― Direct deposit penetration varies widely among businesses

Many employees decline this benefit because they do not have a checking or savings account.― Approximately 56 million* American consumers do not have a checking

or savings account― These consumers currently pay approximately $1,500,000,000* per

year in check-cashing fees

Payroll Cards can help businesses increase their direct deposit penetration, while providing secure cost-effective access to the U.S. financial system for their

employees.

Payroll Cards can help businesses increase their direct deposit penetration, while providing secure cost-effective access to the U.S. financial system for their

employees.

* Source: The American Payroll Association

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How does the Payroll Card work?

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How Does the Payroll Card Work for the Employer?

Enrollment― Employer enrolls employee as part of the on-boarding process

• Consider auto-enrollment― Following enrollment, Payroll Card account information is provided to the

employer― Employer enters the ABA routing number and pseudo-DDA for the Payroll Card

account into the payroll system• Process is the same as setting up direct deposit

Processing Pay― Employer sends direct deposit transmission file as scheduled for each pay period

• File includes pay for both direct deposit and Payroll Card recipients― Employees receive their pay on a reloadable Payroll Card, which works like a

debit card― Employer provides a standard pay stub – paper or electronic

Employer continues to be responsible for compliance with all state hour and wage laws

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Payroll Card Features

Security• FDIC Insurance• Reg E Protection• Zero Liability on Purchases

Functionality• Visa or MasterCard Branded• Point of Sale Purchases

(Signature and PIN)• Cash Back at Point of Sale • ATM Cash Withdrawals

• Make sure issuer’s network meets your needs

• Branch Cash Advances• Bill Payment• Balance Inquiries (Phone, ATM,

Internet)• Transaction History• 24-Hour Bilingual Customer

Service• Phone and Internet

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What are the Benefits to your Business?

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Webinar Audience Question #2

How many payroll checks do you process per month?

Fewer than 1,0001,000 – 2,0002,001 – 5,0005,001 – 10,00010,001 – 25,000More than 25,000

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What’s in It for You?

A convenient, cost-effective alternative to paper payroll checks

» Eliminates postage, check printing and admin costs» Eliminates costs for replacement checks and fraud» Enhances the reliability of pay delivery» Eliminates escheatment processing» Enhances employee benefits package

Complements and enhances direct deposit efforts

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Case Study: Payroll Card

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Payroll Card Case Study: ProfileTypical Employer *

― 500 Employees― Pays Weekly― Check Issuance: $1per check (printing and delivery)― Stop Payments: 5 per month @ $32 each― Reissuing Checks: 5 per month @ $1 each― Bank Check Processing: $0.19 per check

Typical Employee― Average Net Pay: $250 per week― Check Cashing: 3% of pay― Money Orders: 2 per month @ $1 each― Time Away from Work: $3 per month

* Source: American Payroll Association

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Payroll Card Case Study: 500 Employees Participating

Converting from checks to Payroll Card could save the employer $29,300 per year and save the employees $171,000 per year, or $342 each, which equates to a 2.6% salary increase!

Converting from checks to Payroll Card could save the employer $29,300 per year and save the employees $171,000 per year, or $342 each, which equates to a 2.6% salary increase!

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What is an FSA/HSA?

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Overview: Consumer-Driven Healthcare TrendThe consumer-driven approach to health insurance offers employees a wide range of plans they can purchase with the employer's contribution, their own money, or both. In contrast to traditional managed care plans, consumer-driven healthcare: ― Enables employees to customize their health benefits--trading lower premiums

for higher out-of-pocket deductibles― Offers employees comparative quality and cost information about both insurers

and health- care providers― Encourages greater consumer choice and promotes competition and

innovationMany employers are offering High-Deductible Health Plans (HDHPs)― Sometimes referred to as a "catastrophic" health insurance plan, an HDHP is

an inexpensive health insurance plan that generally doesn't pay for the first several thousand dollars of healthcare expenses (i.e., the "deductible") but will generally provide coverage in the event of catastrophic needs.

― Lowers overall healthcare costs by forcing individuals to be more conscientious of a greater portion of their medical expenses.

― Lowers insurance premiums, making health coverage more affordable and allowing coverage for a greater percentage of consumers.

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Overview: FSA

The FSA is an employer-provided benefit designed to make healthcare more affordable by allowing employees to set aside a portion of their pre-tax wages to pay for non-reimbursed qualified medical expenses.

• A tax-advantaged way for employers and employees to save on the cost of healthcareThe employee saves by using pre-tax dollars to pay for healthcare needsThe employer saves by reducing the base on which it pays wage taxes

• The IRS provides a list of eligible expenses.• FSA funds not used during a defined period revert to the employer. Use it or lose it!• The IRS ruled in 2003 that employees can access FSA funds using a debit card with

appropriate procedures to ensure expenses are eligible.• The addition of the debit card has dramatically increased acceptance of FSA.

Flexible Spending Accounts

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Overview: HSA

High-Deductible Health Plans (HDHPs) are often coupled with HSAs to help individuals save for their increased portion of healthcare costs.

• A tax-advantaged way for employers and employees to save on the cost of healthcare.The employee saves by using pre-tax dollars to pay for healthcare needs.The employer saves by reducing the base on which it pays wage taxes.The employer saves on healthcare expenses by migrating employees to HDHPs.

• The funds in the HSA belong to the consumer.• An HSA is portable, meaning it is not tied to an employer and consumers can select any

financial provider (trustee).• Consumers who are not enrolled in Medicare, with an HDHP ($1,100 individual, $2,200

family deductible) can invest pre-tax funds into an HSA for subsequent medical use in the current year or future years.

• The funds can be accessed via reimbursement or by using a debit card.• A debit card is expected functionality on any new HSA account.

Healthcare Savings Accounts

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Webinar Audience Question #3

Do you offer an HSA or FSA option to your employees as part of your benefits plan?

HSAFSABothNeither

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What are the Benefits to your Business?

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FSA/HSA: Benefits to the EMPLOYER

1. Tax Advantages: Contributions to an HSA on the employee’s behalf are not subject to withholding for purposes of FICA (7.65%), Federal Unemployment Tax Act or Railroad Retirement Tax Act.

2. Cost Savings: By offering and contributing to an HSA, employers can see increased adoption of the HDHP and lower overall employee health benefit costs.

3. Reduced Administrative Cost: The cost of administering HSAs can be significantly lower than many other benefit plans.

4. Expanded Employee Benefits: Employers that previously could not afford to offer insurance to their employees may now be able to do so with the HDHP and HSA.

Health Savings Accounts1. Tax Advantages: Employers do not pay FICA taxes

(7.65% on every dollar) or Federal Unemployment Tax on employees’ pre-tax FSA contributions.

• Tax savings can offset a plan’s administrative costs.

2. Employee Morale: Offering FSA plans can improve employee morale as employees control how the money contributed is spent. FSAs also can be perceived by employees as “bonuses,” often without any expense to employers.

3. Control: Employer owns FSA funds. • Forfeited funds can be used to offset a plan’s

administrative costs.

Flexible Spending Accounts

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FSA/HSA: Benefits to Your EMPLOYEES

1. Tax Advantages: Employees can deduct the amount of HSA contributions from their federal income taxes and withdraw funds from an HSA tax free to pay for qualified medical expenses. Earnings on unused funds grow tax free

2. Spouse and Dependent Coverage: Employees may use their HSA funds to pay medical expenses for a spouse or dependent, even if the spouse/dependent is not covered by an HDHP.

3. Portability: If employees leave your company, they are entitled to keep the funds in their HSA.

4. Optional Contribution: The employer and/or employee may contribute to the employee’s HSA.

5. Control: Employees own the funds in their HSA account and can choose how to invest funds.

Health Savings Accounts

1. Tax Advantages: Employees fund their FSAs with pre-tax salary deductions.

2. Full value of healthcare FSA funds available from day one: The employee’s full annual election is available to him/her on the first day of the plan, even though payroll deductions will occur throughout the year.

3. Elective Procedures: Employees can use their FSA dollars to pay for elective procedures.

Flexible Spending Accounts

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What is an FSA/HSA Card?

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FSA/HSA Card: OverviewProvides a convenient way for employees to easily access their HSA and FSA accounts to pay for eligible IRS-qualified medical and dental expenses, such as co-payments, deductibles and medications― Upon enrolling in a plan through their employer, employees receive a

personalized embossed HSA and/or FSA card for their account.― HSA/FSA funds are deposited to the card account.― When employees need to draw on their HSAs or FSAs to pay for eligible

expenses, they present their card to the merchant, doctor or pharmacy and the funds are deducted from their account.

― Electronic claims substantiation makes reimbursement seamless for employees. Filing of paper claims is minimized.

70-75%1 of claims are electronically substantiated, saving the employertime and money.Adding a card product to your FSA plan could increase employee participation by up to 60%2 in the first year.

1 Source: Stanley, Hunt, Dupree & Rhine2 Source: Evolution Benefits

29Source: Evolution Benefits

2,540

3,896

4,5694,991

1,5461,966

2,650

3,245

2,129

3,493

4,547

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2004 Participation 2,540 1,546

2005 Participation 3,896 1,966 2,129

2006 Participation 4,569 2,650 3,493

2007 Participation 4,991 3,245 4,547

Company 1 Company 2 Company 3

FSA/HSA Card: Participation Increases Over Time

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Webinar Audience Question #4

Does your company’s HSA and/or FSA plan include a debit card?

YesNoDon’t knowDo not offer HSA or FSA plans

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Case Study: FSA

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FSA Case Study: ProfileEmployer

― 500 Employees Participating― FICA Tax

1: 7.65%

― Federal Unemployment Tax (after 5.4% credit)1

= 0.8%― FSA Dollars Forfeited at Year’s End

2= 20%

• These funds can be used to offset FSA administrative costs― Plan Costs

3: $4.50 per participant per month

Employee― Average Election

2: $1,000 per year

― Average Federal Tax Bracket1

= 25%― Average State Tax = 4%― FICA Tax

1= 7.65%

― Debit Card access

Many employers achieve up to 60% lift in FSA enrollment in the first year when a card is added to their FSA offering.

Many employers achieve up to 60% lift in FSA enrollment in the first year when a card is added to their FSA offering.

1 Source: Internal Revenue Service 3 Source: Stanley, Hunt, Dupree & Rhine2 Source: Ceridian

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FSA Case Study: 500 Employees Participating

Adding FSAs to a business’s benefits package can save the employer $115,250, and may save employees a total of $183,250 per year, or $366.50 each!

Adding FSAs to a business’s benefits package can save the employer $115,250, and may save employees a total of $183,250 per year, or $366.50 each!

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Electronifying HR Processes Achieves Exponential Benefits

1 + 1 = 7Payroll Card HSA/FSA Card

Employer Benefits1. Reduced Costs2. Improved Benefits Plan3. Improved Retention4. Competitive Advantage

Employee Benefits5. Greater Functionality6. Greater Security7. Reduced Costs

Emerging electronic payments provide compelling value propositions for both

businesses and employees!

Emerging electronic payments provide compelling value propositions for both

businesses and employees!

Great Benefits

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Questions and Closing Remarks

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Type your question or comment in the window that appears, and then click “send.” Submitted questions will

be answered verbally as time allows.

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Thank You for Participating Today!

Contact InformationPlease call 1-800-810-5625 to be connected to a BB&T Payments Consultant in your area.Or, visit our website at BBT.com/business/products/payrollcard/

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