July 29, 2013
'Reverse layaway' company wants you to buy goods by payroll deduction
A decade ago, payroll deductions were pretty much limited to company-provided health insurance, flexible spending accounts and taxes.
But as companies have become more cash-strapped and eager to add more to their benefit offerings, they’ve expanded the list of things employees can buy directly through their paychecks.
Today, many companies have added homeowners insurance, long-term care coverage and health care policies that pay cash for out-of-pocket medical emergencies -- with one caveat: Employees pick up the entire tab for what they choose to buy.
Now employees may be able to add diamond earrings, dinette sets and refrigerators to the list.
Paycheck Direct is trying to persuade companies to add their offerings to the things employees can buy through payroll deductions. The company’s catalog includes lawn mowers, bicycles and mattresses; payments are spread out over the 26 paychecks during the course of a year.
‘’It’s reverse layaway,’’ says Andy Hillyer, vice president of business development at PayCheck Direct, who was promoting his firm’s products at the recent HR Houston conference at Reliant Center. ‘’You get it immediately, and you pay for it over time.’’
Hillyer said the service is a way to keep employees out of the paycheck loan companies and rent-a-centers that charge high interest rates.
PayCheck Direct is owned by a subsidiary of Bluestem Brands, which also owns the better-known Fingerhut, the giant catalog company that caters to shoppers who make monthly installment payments.
One of its selling points is reducing employee anxiety by providing what a sales brochure calls a “safety net that provides employees an option to get what they need, when they need it ... responsibly.’’
Most people don’t have $1,000 in discretionary savings, Hillyer says, citing a 2011 survey by the National Foundation for Credit Counseling that found 64 percent of Americans don’t have $1,000 available to fix their cars or repair their air conditioning units.
PayCheck Direct touts its zero-percent financing, with no credit checks or credit applications, and its freedom from risk for employers. To qualify, employees must be at least 18, earn at least $18,000 a year and have been on the job for at least six months, Hillyer says.
But is it a good deal?
The Coleman Weather-master tent that sleeps six costs $12.69 for 26 payments, which works out to a total of $329.94, plus shipping costs. Buy the same tent from Wal-Mart for $197, with free shipping.
Similarly, to buy the Amana 25-cubic-foot side-by-side refrigerator from PayCheck Direct costs $1,300 - $50 per 26 payments. Plus as much as $250 shipping. Get it from Amazon for $949 plus $199 shipping.
Joe Ahmad, an employment lawyer with Ahmad Zavitsanos Anaipakos in Houston, was surprised when he heard about the idea of buying flat-screen televisions through payroll deduction.
‘’It’s awfully goofy to combine employment with buying personal items,’’ Ahmad says. It also raises a ‘’whole host of potential consequences’’ because it’s so untested.
For example, most employees would assume the products have been endorsed because the company name is on the front of the catalog and it’s the company deducting the funds, he said.
‘’What if I ordered the dinette set and it breaks or it’s crappy?’’ Ahmad asks. “Don’t I sort of hold my employer responsible?’’
It’s not a legal problem, he says, but it could be a morale problem.
‘’What’s in it for the employer?’’ he asks.
Hillyer says employers aren’t liable for repayment in the event an employee leaves the job before paying for the merchandise. In those cases, PayCheck Direct tries to set up a separate agreement with the employee to continue making the payments, especially for big-ticket items.
But there’s nothing to force someone to keep paying, and that could be a problem for the very companies that offer the service.
Instead of encouraging employee loyalty, participating companies may find their employees leaving their jobs because they can’t afford to pay for what they ordered, Ahmad says.
They may find it easier to get another job that doesn’t include the payroll deductions for the outdoor cookers, pool tables and sofas.
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