Payroll cards are cheaper for employers and can be more convenient for employees. However, some cards charge high fees to withdraw money and access account balances. The right payroll card might be a good solution, but it can’t be the only solution you provide.
Some employees, especially hourly workers, don’t have a checking account and can’t take advantage of direct deposit. A solution that’s increasingly popular for them is the payroll card, a prepaid debit card that’s credited with an employee’s pay each pay period.
Payroll cards are less expensive for employers and generally more convenient for employees. It typically costs a company about $1.75 to produce a paper payroll check and about 25 cents to make an electronic deposit.
Each worker’s pay is automatically available on the card each pay day, and an employee doesn’t have to find a place to cash his payroll check.
Some payroll cards also provide the same consumer protections as debit or credit cards, such as cash-back bonuses, insurance protection on purchases and liability protection if a card is lost or stolen.
Know the drawbacks
While a well-designed payroll card can be a win-win for everyone, many payroll cards wind up costing employees more money in card fees than they paid to have their checks cashed, even when using a payday check-cashing service that charges high fees.
Many cards charge a fee for using an ATM, a fee for making a point-of-sale purchase, a fee for obtaining a balance and even an overdraft fee if the card owner makes a purchase with insufficient funds.
For someone earning the federal minimum wage of $7.25 per hour, two $3 ATM withdrawals and two $1.25 point-of-sale purchase fees eliminate an entire hour’s wages.
Before you offer a payroll card, research your options to find out how you can provide a card with as few fees as possible, and one that allows employees to receive their entire balance in cash for free at least once each pay period. In some situations, there may be rules about making sure your employees can access their pay without incurring fees.
Alternatively, you can allow employees to choose from different kinds of cards with varying options and fees.
When you offer a payroll card, it should be one of several choices an employee can make about how to receive her pay. You must continue to pay an employee with a paper pay check if the employee requests it. You cannot require employees to be paid using a payroll card. The New York attorney general is investigating some of the largest employers for violating that rule.
If an employee chooses a payroll card, the law requires that:
- All card fees are clearly disclosed in writing and in a form that employees can keep.
- Employees must be able to check their balances by phone, review a 60-day history of their accounts online and obtain a 60-day history of their accounts in writing.
- Provided that an employee reports a card lost or stolen within a specified time period, the employee must have limited liability for fraudulent charges.
- The financial institution must respond to any reports from an employee about payroll errors.
Of course, this is just a summary. Consult qualified advisors for the full list of rules and requirements.
