What Is a Payroll Card and How Does It Work?

Payroll cards have become more prevalent in the past few years, and most businesses and employers now use them. Your finance office may be the answer if you want to improve employee lives and reduce company turnover.

Among the best things you can do to keep your staff happy is to pay them on time. It's even nicer if they can get to their payment quickly and easily. You can accomplish this by providing them with a payroll card. 

Cards will ensure timely payments and reduce your administrative costs. Payroll cards, a growing payment gateway, may solve your wedge payment issues. Continue reading for more.

What is a Payroll Card?

Pay cards are like debit cards. Like debit cards, they are plastic cards loaded with a worker's salary on payday. The brand and employee information, such as full names, are written on the card. Discover, MasterCard, Visa, Money Network, and Netspend Skylight ONE Card are the most popular companies that give out pay cards.

The primary purpose of pay cards is to serve employees without checking accounts. Rather than getting a physical check, the worker can use their pay card to get money or make regular payments up to the amount of their income.

Even though the debate about Payroll Cards vs. Direct Deposit still rages on, the choice nevertheless varies depending on the employer and the employee. On the other hand, most employees who can't get a checking account choose payroll cards because they are easier to use.

How Does a Payroll Card Work?

A payroll card is a corporate version of a prepaid debit card that you can use to pay staff or other contract workers. According to the Consumer Financial Protection Bureau (CFPB) rules, your employer must give you at least one alternative payment method. If you choose a payroll card, your company or the company that gave you the card must provide you with its rules. And it is critical to know the charges applicable when using the card.

If you agree to the terms and conditions, your employer can put your pay or another payment on the card when you get paid. Then you can use the card the same way you would use any other payment method. You may also use payroll cards to get cash from ATMs. Payroll cards also let you buy goods and services from any store that accepts card payments, online or in person.

A payroll card is different from a normal debit card in that you don't need a bank account to use it. However, a cardholder can transfer money from the payroll card to a bank account. Payroll cards also provide balances, statements, PIN alerts, and other tools to help you track spending and manage your money.

What issues are resolved with Payroll Cards?

In addition to paper checks and direct deposit, payroll cards are another way for employees to get their wages. Direct deposit is helpful for employees who have checking accounts, but many Americans don't have bank accounts. A 2019 FDIC report states that more than 4.5 million households in America have no access to a bank account. Direct deposits are, therefore, not a choice for such households. 

 They instead get paper checks and cash them to get their money. Consequently, they have to wait even longer to access their wages, and fees cost them. As they wait for the payout, they might need to catch up on bills such as rent, utilities, and insurance, which might attract penalties.

Many other Americans don't have enough money in their bank accounts. This implies that even if they have a checking account, they still get money from places like payday lenders. These workers might also have to write checks on paper at some point.

Businesses must pay for physical checks, delivery, and employee time to put them together, making them more expensive. Payroll cards are more accessible and cheaper for both employers and employees. Employers don't have to worry about sending out paper checks, and employees enjoy the convenience of getting their money on time.

Advantages of using a Pay Card

• Employees get paid immediately, so they don't have to worry about cashing a check.

• Since pay cards need a PIN, employees have more peace of mind about the safety of their money.

• Employers can save money by not giving out paper checks

• If money is spent without permission, the employee may not be responsible as long as the problem is reported quickly

• You can use the cards anywhere that accepts card transactions. The cardholder can get cash from an ATM and buy things online or in person

• Cardholders can use a web cardholder portal to look at their balance, statements, and PIN alerts

Disadvantages of using a Pay Card

• Most payroll cards have monthly service charges, which the company or employer usually pays.

• If your card is stolen or lost, it may take some time to get a new one

• Some ATMs limit withdrawal amounts, limiting cardholders' use of funds

Who should use a Pay Card?

Pay cards can be helpful if you don't have a checking account to put your paycheck into. They are beneficial because you won't have to wait long for your money. If an employee doesn't have a bank account, she can choose to get paid with a payroll card instead of a check. Companies or startups that want to save money on mailing checks can also use payroll cards. With pay cards, they don't have to make checks and hand them out. Employers can use a payroll card system instead of writing monthly checks to save time.

What types of employers use Pay Cards?

Employers can use pay cards to pay their employees quickly and securely, especially those who do not have a bank account. Any business can use payroll cards to pay their employees.

On the other hand, payroll cards can be a good choice for companies that want to give their staff members who don't have bank accounts a more manageable payment option. Payroll cards may be helpful for businesses that want to use something other than paper checks or direct deposits.

What types of employees use pay cards?

Most employees who don't have bank accounts use pay cards. However, people with bank accounts can also choose to use pay cards. Some employees use pay cards because they have perks like no fees for cash withdrawals. Pay cards also get rid of the fees that services that accept cash checks have to charge. Some cards have small fees for some transactions, but the costs aren't as high.

How are pay cards regulated?

Federal and state laws regulate payroll cards to ensure fair use. The goal is to keep employees from having their pay affected unfairly. The key to complying is being honest and ensuring all employees know what a payroll card is. The regulations also ensure that employees understand that their involvement in a payroll card system is voluntary.

Federal Pay Card Regulations Payroll Cards

The Fair Labor Standards Act (FLSA) and the Electronic Fund Transfer Act (EFTA) inform the federal government how to handle pay cards. Employers who use payroll cards must follow all laws regarding minimum wages in the FLSA. There may be fees that come with payroll cards that take an employee's pay below the minimum wage. Before using a pay card for direct deposit, employees should know how much it costs to make a withdrawal or get a new card. 

Per the Electronic Fund Transfer Act and Regulations E and Z, employers must offer at least one additional payment method. The act says that employers can't force employees to get their pay on a pay card. Employers must also tell their workers in writing everything they need to know about their pay card accounts.

According to EFTA and Federal Reserve Regulation E, the employees must know about any service charges they might have to pay if they use a payment card. The card issuer must also provide the employee with the card's previous transactions. The rules also say that the issuer must answer customer complaints within a certain time.

State Regulations On Payroll Cards

Different states have different rules about what businesses issuing pay cards must do. You have to offer at least one more way to pay, but each state decides whether or not that option will be electronic.

For example, employers in New York and California can offer pay cards, but only in addition to paper checks. In such states, a paperless system can't be the only choice. But states like Utah, Colorado, Arizona, and Texas allow only direct deposit and pay cards as payment methods. You don't have to offer paper checks if you don't want to.

There are also general laws in many states that say employees should get their remuneration without deductions. But since employees can't always get their full pay from ATMs and fees may be taken out of their income, the rules about payroll cards have made this payment method controversial.

Payroll Cards vs. Debit Cards

This comparison depends a lot on the circumstances and desires of your employees. Giving them a payroll card might be less expensive and simpler if most of your staff don't have checking accounts. Payroll cards are similar to debit cards but are not the same. Debit cards work with funds in a bank account. Thus, you cannot have a debit card if you do not have a checking account. Payroll cards do not have a link to bank accounts. Instead, they come with a unique account from the company that gives them out. Employers put money into the account ahead of time, and it's usually impossible to overdraw. And this makes it less likely for the employee to pay an overdraft fee.

Pay Card Alternatives

There are different ways to pay employees without using paper checks, like direct deposit and electronic checks. By employing some of these ways to pay employees, businesses can give their workers access to their earnings right away and help lower the costs of payroll as a whole. Paperless payments can allow businesses to save time and money they would otherwise spend on processing paper payouts. It can also cut down on the costs of printing and sending checks, as well as fines for noncompliance caused by late checks. Even though most workers use bank transfers, employees without bank accounts can't use this payroll system.

FAQs

1. Can employers require employees to utilize direct deposit for their wages?

Even though most employers prefer direct deposits, there are other options. So, no law requires employees to take direct deposits if they don't want to.

2. Can Employers Require Employees to accept pay cards?

You can only use payroll cards as an alternative way to receive payment, not as the only way. Employers can't make their workers use payroll cards.

3. Do employers have to offer to pay stub information if they give employees pay cards?

The law requires employers to give pay stubs to their workers. But most companies that give out payroll cards let their customers get electronic pay stubs.

4. Do pay cards affect employees' credit?

Payroll cards don't affect the credit of the people who use them. But if you miss payments or have a significant amount charged to your cards, it could hurt your score.

5. Do pay cards have fees?

Most payroll cards don't impose a monthly service fee, but you may have to pay a fee to use an ATM for withdrawals.

6. Do pay cards allow overdrafting?

You can't overdraw on a payroll card because your expenses can't exceed your income.

7. What happens if a pay card is lost or stolen?

If you let them know, the company can replace payroll cards if they are lost or stolen.

8. Are pay cards only for unbanked employees?

Pay cards are not only for unbanked employees. Some employees divide their pay between regular bank accounts and payroll debit card accounts to keep track of their money.

9. Can pay cards be managed online?

Payroll card issuers provide an online portal for card management. You can view your transaction history, top up your card, and do other things on the portal.

10. Where can employees use pay cards?

Payment processors like Visa make these cards. This means employees can use them anywhere that accepts digital payment cards.

Final Thoughts: What Is Payroll Card and How Does It Work

Pay cards are an excellent alternative for workers who don't have bank accounts, but they shouldn't be the only way you pay your staff. 

It would be best if you also considered options like direct deposit. There are numerous pay card providers on the market from which to choose. Many providers let you sign up for free. Let your employees know that payroll cards are optional.