Payroll cards are a prepaid debit card which employers use to load an employee’s salary or wages in lieu of a formal check. The funds are distributed each payday, providing an alternative to direct deposit for those who cannot or will not hold a traditional account.
Over 60 million people in the United States are “unbanked,” which means they do not have, or do not qualify, for a traditional banking account.
Most payroll cards are offered by today’s major payment processors, like MasterCard or Visa, giving workers the option to access their funds as they would with a linked debit card. Payroll cards are always reloadable, which means a worker uses the same card all the time instead of being issued a new card each payday.
Employees receive convenient access to their wages with this setup without the need to maintain an account with a financial institution. Their funds are received instantly, sometimes up to 48 hours early, depending on the maker of the card. Then they don’t need to worry about carrying large sums of cash around with them to purchase necessary items.
As with any system of compensation, there are specific pros and cons of payroll cards to review before using or implementing this type of system. Here are the crucial points to consider.
List of the Pros of Payroll Cards
1. Payroll cards are instant and convenient to use.
Employees get to use their payroll card immediately when funds are issued to it. No bank account is necessary for them to control this money. Depending on the processor listed on the card (Visa, MasterCard), they can use the card just as they would a standard debit or credit card for purchases. They can take cash out from an ATM if they choose, make online payments, and take advantage of e-commerce opportunities.
Many of the payroll cards offer the same benefits, like fraud protection, which you’ll find with standard debit and credit products too.
2. It is easier for employees to manage their funds with payroll cards.
Most payroll cards will not permit an overdraft if a purchase exceeds the balance available. That makes it more challenging for debt to begin building up for the worker. Employees can even add their own resources to their payroll card if they want to avoid carrying around a lot of cash. Although there are sometimes fees associated with transfers that occur outside of the direct deposit mechanism from the employer, the payroll card creates a record of transactions and responsibility that can help some people qualify for a traditional bank account in the future once again.
3. Payroll cards offer more security.
If someone takes your wallet or purse and you’ve got stacks of cash in there, then that money is probably gone. The same can’t be said of a payroll card. You have access to the same security measures as a typical debit or credit card, including a PIN and signature mechanism, which makes it difficult to access resources if the item is stolen. Workers can report their lost payroll card to their employer, then receive a new one already loaded with their current balance. That makes it a lot easier to replace your cash if it gets misplaced.
Payroll cards are backed by the FDIC, which means there are more recovery options and fewer forgery options over the long run with this payment option.
4. Companies save money when they issue payroll cards.
The cost of printing physical paper checks is higher than you think it would be, especially for large organizations. There’s also the expenses of processing, ink, and postage to consider here. Employers save on this expense when they issue payroll cards instead. Workers save some money with this payment method too because they don’t need to go to a bank or a check-cashing institution to get their funds. There’s no need to receive cash for the entire check amount because the funds are managed in a cashless way.
5. Payroll cards offer a digital delivery mechanism.
There are no delays involved with a payday when payroll cards are used by organizations instead of a traditional check. If there are natural disasters, blizzards, heavy rains, or other elements of delay that prevent the physical processing of a check, workers still receive their funds through the digital transfer on time. They don’t need to worry about picking up their check during regular business hours either. That makes it especially helpful for workers who telecommute or contract remotely.
6. There is more transparency available with payroll cards.
Payroll cards give workers the option to monitor all their account records in a way that cash purchases do not. Statements and transaction histories let workers know where they might be leaking funds. This process allows them to see where their withholdings are going too so they can make changes if necessary. Most employees find that the free access to these items helps them become budget-conscious, eventually leading to stronger financial health.
7. Many of the fees can be avoided with a little ingenuity.
Even when the fees of payroll cards are enforced, there are some ways to get around the issue. You can go inside a bank and withdraw cash from a teller without charge with most products in this category. Grocery stores will let you take out extra cash with your purchase when the card is structured like a debit. Big-box retailers offer the same benefit. Although there might be a PIN fee of this, that cost is lower than the ATM fee. If you have a free purchase, taking out most of your check through this method can help eliminate the extra costs associated with this product.
8. Worker benefits can be issued on a payroll card too.
Any benefits which offer cash compensation to an employee can be distributed through a payroll card. Anything which requires a physical check before this technology was available becomes a possibility. That means bonus checks, FSA benefits, and even mileage compensation can be funneled through this system. Workers can gain access to these funds up to 48 hours faster than if they received a physical check, with fewer delays, which means they can take care of their family needs quicker too.
List of the Cons of Payroll Cards
1. There are more fees to pay with payroll cards.
Payroll cards do have fewer fees than the average gift card. They also have more fees than other methods of payment, including debit and credit cards or checks. Most have a monthly maintenance fee which may or may not be covered by the employer. The E1 Payroll Card from Visa charges $2.95 per month unless there is a deposit to the card in the same month. There are balance inquiry fees, decline fees, and even account closure fees. Make sure to review the current fee schedule with your employer before agreeing to this form of payment.
2. Payroll cards are sometimes restricted by local laws.
There are several rules in place that govern how workers receive their compensation. Most laws involve how employees can access their full paycheck without encountering a fee. There are rules in place that let some individuals choose the way they want to be paid, including by a physical check, which limits the cost-savings options available for the organization. Before offering this option, every company should review the local situation with their legal team to see if the pros outweigh the cons.
3. Lost funds are challenging to recover with payroll cards.
The process to follow when trying to recover funds lost through fraud is extensive with a payroll card. Employees must report lost or stolen cards immediately to ensure they don’t suffer a financial loss from the situation. Some reports must happen within 48 hours for some card issuers. Make sure that you know the process involved for reporting unauthorized charges, then contact the card or your employer immediately, or you might find yourself responsible for the expense.
4. The fees of payroll cards impact low-income workers the most.
There are laws in place which require an employee to have full access to their funds at least once during each pay cycle. That’s why you’ll find most payroll cards offering a first ATM transaction for free, along with some initial purchase fees being waived. Once you get past that no-cost element of use, however, the cost of using payroll cards adds up fast if you’re only working at $7.50 per hour. Many cards have a $1 point-of-sale fee, which means every transaction will cost more.
5. You can’t pay some bills with a payroll card.
Although debit cards are widely accepted today at many locations, there are some service providers who do not accept them. Employees do not have the option to pay with a check when using this type of compensation system, which means they must go through extra steps (and costs) to pay some bills. They would need to withdraw their money, then take the cash to a bank for a cashier’s check to be written. The costs of doing business in this way climb rapidly for workers compared to those who have alternative payment options.
6. Some ATMs limit how much can be withdrawn.
Workers who receive their payment through a payroll card may not be able to access their full wages through a local ATM. Many units place restrictions on the amount that can be taken in a single transaction. Some institutions limit this amount to just $250. That forces the employee to look for alternative methods of cash access to avoid the potential fees associated with their card. In some small communities, that may not be possible.
7. Workers don’t like changes to how their pay is issued.
There will always be workers who prefer to be paid by a physical check for what they do. Companies will never get around this issue unless society becomes completely cashless. Anyone who gets a physical check will be wary of any changes suggested by their employer to how they receive their wages. It speaks of a distrust in the relationship between employer and employee that is challenging to overcome at times. Because some benefits might be paid through this method too, it is not unheard of for workers to quit if employers push too hard to use this payment option.
8. It takes time to replace lost or stolen cards.
If you lose your payroll card, then you must contact your employer immediately. Most card issuers require that you contact them as well. That will cause a hold to be placed on the card to prevent new transactions. Then you’ll be issued a new card to replace the one which disappeared. Most payroll cards charge a $10-$15 fee to replace a lost card, and it can take up to 10 business days for the new one to arrive.
Some employers do have access to temporary replacement cards to make up the two-week time gap between reporting a lost card and receiving a new one. You’d activate the temporary card, then activate the new permanent card after you receive it.
These pros and cons of payroll cards evaluate the $42 billion in gross wages that are loaded onto about 6 million active cards each year. By 2022, that figure could climb to over $60 billion on almost 9 million active cards. Although employers cannot require workers to be paid solely by this option (or even direct deposit), moving away from a physical check does save money and provide more security for the worker. If a plan to avoid as many fees as possible can also be implemented, this method of payment offers a lot of promise.