Payroll cards are a growing trend in small business: About 14 million payroll cards were in use in 2017. Payroll cards provide easy access to paychecks without the need for a bank account or banking relationship. This can be crucial for many Americans who cannot (or choose not to) open a bank account.
What is a payroll card?
Payroll cards allow employees to access their paychecks without setting up a bank account. They function like debit cards: Payroll cards are loaded with a paycheck each pay period and can be used to withdraw cash or make purchases. This can be an advantageous tool for small businesses with employees who don't have bank accounts or don't have a lot of banking options in their location.
Depending on which payroll card service you sign up for, it may be more cost-effective to provide a payroll card option to your workers. Printing and handing out checks can be expensive, and certain payroll companies may charge extra for things like direct deposit.
From a worker's perspective, it's important to understand the different fees associated with payroll cards, as they aren't exactly like traditional debit cards. While it can be a great option for employees with no bank account, you'll have to pay some fees, like monthly maintenance fees, ATM withdrawal fees, balance inquiry fees, fund transfer fees and account closure fees. The exact fees will depend on which company you're working with.
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Payroll card pros and cons
Payroll card pros
- Payroll cards are a simple, easy way employees can access their paychecks without having a bank account.
- If a payroll card is lost or stolen, it can be easily replaced (for a fee, of course).
- It's a convenient option. There's no need to go to a bank to cash a check or check-in to see if your deposit has hit your account. You can access your funds immediately.
- Payroll cards are easily replaced.
- There is no risk of debt or financial liability, as the card acts as a debit card and not a credit card.
Payroll card cons
- They don't provide the same benefits that a bank account does, like favorable interest rates.
- Fees may be charged each time an employee views their balance.
- While easily replaced, a paycard can technically still be lost or stolen, which is not an issue with direct deposit.
- There may be additional fees to use the card.
- Depending on your industry, it may not be a good payment option.
Payroll card providers
There are several payroll card providers for small businesses. Some major payroll providers offer payroll cards as a way to compensate employees. If you're working with a major payroll provider, talk with your representative to determine what payment via payroll cards would look like for your business.
In terms of other options, there are a few payroll card providers to consider, according to the American Payroll Association.
- Money Network: Money Network offers payroll cards and an intuitive online experience to manage your payroll card offering. It offers enhanced security, flexible deposit options and limited liability. Money Network backs all its funds with the FDIC. This zero-liability protection means employees are covered if something happens to their payroll card. Money Network has more than 20 years of experience as a prepaid debit processing company, so you'll be partnering with an established industry provider.
- Netspend Skylight ONE Card: Netspend is one of the largest payment programs in the country and offers some key features such as flexible enrollment and electronic reporting. It offers an online portal where employees can view online deposits and wage statements. As a full-service partner, this company also helps small businesses to implement and manage payment card programs. This includes help with setup, marketing, training, compliance and ongoing support.
- rapid! PayCard: This company offers a 100% e-payroll solution for its clients. There are several distribution options, including e-wallet payouts, digital checks and a host of payroll cards for your employees to choose from. It offers instant payment and electronic payroll delivery at zero cost for employers. It also offers electronic paystubs and other convenient payroll features for both employees and employers.
- U.S. Bank: U.S. Bank provides payroll cards to small businesses, making it one of the few major banking institutions that backs payroll card initiatives. The weight behind the U.S. Bank name means you'll be partnering with a proven financial partner. Its payroll card initiative is called Focus, and it includes fraud protection, online purchasing and 100% electronic payments. It also provides text and email alerts, cash-back rewards programs, savings account features, and a mobile app.
- Wisely: Wisely is a payroll card provider backed by ADP, one of the largest payroll processing and HR management companies in the United States. It offers fee-free cash access at ATMs and banks as well as cash back at retailers. This feature is unique, considering many payroll card providers charge some kind of fee. Wisely also has a mobile app where users can manage funds – it also offers multiple sources for funding – so you can connect part-time job paychecks, tax refunds or any other kind of income to your Wisely account. It's compliant in all 50 states, and there is high-level support for small businesses.
How to transfer money from a payroll card to a bank account
Transferring money from your payroll card to a bank account can be simple or complicated, depending on which payroll card provider you choose. Surprisingly, there isn't a lot of information out there on how to transfer funds from a payroll card to a bank account. Some services build it into their offerings, while with others, you may have to speak with your bank or payroll card provider.
Payroll cards are ideal for workers with no bank account, while direct deposit is a better option for workers who need immediate access to funds through a bank account. If your employer offers you a payroll card, it must offer you either a direct deposit or paper check option as well. There are several labor laws that require employers to provide multiple options. If you have a payroll card and you need to transfer funds to your bank account, it's best to talk to your provider or employer. Keep in mind that you may pay a fee to transfer money to a bank account.
Payroll Card FAQs
Is a payroll card a debit card?
Essentially, yes. They function in the same manner in that a financial institution will hold the money deposited by the employer in an individual account, and the payroll card will be able to access the money much like a debit card. Alerts can be set up to notify you of low balances, or when funds become available after a deposit. Also, payroll cards tend to be affiliated with (“branded”) one of the major credit card issuers, such as Visa, MasterCard or American Express.
Can employers only offer payroll cards as a payment method?
No. Despite the growing popularity of payroll cards, federal banking laws require that employees be offered at least one additional payment option. Due to the savings of electronic fund transfers over paper checks (about $3.00 per payment, per employee), direct deposit is usually the second option. That is not to suggest that employers must only offer two forms of payment. Each state retains the right to regulate the specific methods of payment offered to employees.
Where can employees use payroll cards?
Payroll cards are generally accepted anywhere that you would typically use a standard bank account debit card. They hold the same buying power as a bank card and can be used in stores, gas pumps, even ATMs. Cash can be taken out of the account at ATMs or using a cash-back option at grocery or retail stores that offer such at checkout. Payroll cards can also be used to make payments online that would accept the same brand of debit card.
Can you deposit money on a payroll card?
This depends on the services offered by the institution used by your employer. Some cards provide the option of adding money at a money exchange center or ATM, while some do not. Review the terms of your program to see if this option is available.
Is direct deposit or a payroll card better?
This greatly depends on your situation and preferences. If the majority of your employees do not have a bank account, it may be easier and cheaper to get a payroll card.
Payroll card fees also matter. Some cards have very few fees associated with them, while other cards may charge a fee for things ranging from monthly use to withdrawing funds from an ATM. Additionally, not every card offers the option to deposit non-payroll money onto it, so your company might be limited as to what funds you can load onto the card.
Bottom line
Payroll cards are an ideal option for small businesses looking to save money on processing payroll. They are also a vital tool for employees who don't have bank accounts. There are several payroll card providers. Most of the large payroll processing companies offer small businesses a payroll card option. There is a host of third-party companies that can provide independent service, should your organization process payroll manually or work with a partner that doesn't offer payroll card services.
From an employer perspective, payroll cards can be a great way to securely compensate your employees while saving money on direct deposit fees and paper check overhead.
As an employee, you should be aware of the fees and conditions associated with payroll cards. You should use a payroll card that provides some kind of online portal or mobile app.
There are several pros and cons to using payroll cards, but, as usual, the best option for your business depends on your workers, your business's needs, and overall cost.