What is a pay card?

Also known as a payroll card, an employee pay card functions similarly to a debit card. Like a traditional debit card, an employee pay card carries the branding of major issuers such as Visa or MasterCard, so it’s accepted by most businesses that accept credit cards.

With a payroll card, instead of handing your employee a physical check or sending a direct deposit to their checking account, the employee receives a physical card containing their wages. Once the employee has been issued the pay card, it can be reloaded every pay period with their wages.

Why should I offer a pay card to employees?

Depending on the type of business you operate, you may find you have team members with more precarious financial situations than the average American. These individuals may have had trouble participating in or maintaining traditional forms of banking.

In the United States, 81% of adults have a bank account and don’t use alternative financial services such as check cashing services, money orders or payday loans. However, 18% of adults in the United States use services such as payday loans or lack a bank account of any kind.

Accordingly, it’s possible that some of your employees may not be able to deposit a physical check or receive direct deposit services. Offering them the option to receive a pay card gives more of your workers a way to easily receive wages.

Benefits of employee pay cards

Issuing employee pay cards as an alternative to physical checks or direct deposits can offer benefits to both you and your workers. Offering pay cards may even simplify the payroll process, which is a critical component of any well-functioning business.

For you as an employer, using a pay card can ease certain aspects of maintaining the payroll. Reloading a pay card can be done online or over the phone, so you don’t have to worry about the hassle and cost of cutting a physical check. Additionally, you can lessen the inconvenience and postage associated with mailing a check or arranging for employees to physically collect their pay.

A worker who opts for an employee pay card over direct deposit also saves on direct deposit fees. According to the National Federation of Independent Business, these fees can cost about $1.50 to $3.00 for each paycheck, which can add up depending on the size of your staff and frequency of paychecks.

One other benefit of offering pay cards is that some payroll card issuers give employers the opportunity to have blank cards on hand. This can be useful to both quickly pay new employees and to give departing employees their final pay on the spot. The latter is especially useful if the employee leaves on unfavorable terms, and both parties would prefer the finality of concluding the professional relationship quickly and without the loose end of final wages needing to be issued.

For your employees, recipients of pay cards enjoy the convenience of not having to go to the bank to deposit a check or use check-cashing services, which can charge hefty fees. Employees can use the pay card like they would any debit card: They can purchase items with it online or in stores that accept debit cards, withdraw cash from an ATM and withdraw money from a bank. As with a bank account or a credit or debit account, employees using pay cards can check the card issuer’s website to check balances and see transactions.

Another benefit of an employee pay card is that workers can use it to give money to a relative or anyone else they help support. This may even be a benefit to those who use traditional banking and direct deposits but want a fixed amount every pay period to give to someone. For example, an employee might opt to have a small portion of their wages loaded onto a pay card each pay period to give their child a fixed allowance.

Drawbacks of employee pay cards

For employers, offering pay cards to workers doesn’t have much of a downside: it’s cost-effective, convenient and as easy to integrate into your payroll software as any other wage payment method. For employees, though, it may be a slightly different story. Whereas you may save some money on direct deposit fees or on printing and distributing checks, certain fees and costs can get shifted onto your employees, depending on how they use their employee pay card.

The situation will vary depending on the financial institution you contract to provide the pay cards, and certain states also govern rules around fees for pay cards. Some of the potential fees your employees may incur include the following:

• ATM fee: Pay cards may carry a fee to withdraw funds from ATMs outside of the card issuer’s network.
• Per-transaction fee: Some cards may charge a fee each time the card is used for a retail or online transaction.
• Cash reload fee: Some issuers charge a fee when employees add money to their cards.
• Balance inquiry fee: ATMs may charge a balance inquiry fee on pay cards, which employees can avoid by checking the pay card’s balance online.
• Customer service fee: Some cards may carry a fee if the employee needs to contact customer service.
• Monthly maintenance fee: While it is not typical—and in some states it’s outlawed—cards in some states may incur a maintenance fee.
• Lost or stolen card fee: There may be a charge to replace the card if it is misplaced or stolen.
• Inactivity fee: Some pay cards carry a fee if a long period of time lapses between uses.

FAQs

How do I manage paying workers via an employee pay card?

Managing the payment of your employees using pay cards is as easy as any other online banking you may do on the computer or via an app. Using your financial institution’s online portal, you can add your employees’ wages to their cards and see recent transactions you’ve made. You cannot, of course, see the transactions your employees make using their card, which you can emphasize to employees when explaining how pay cards work.

Are employee payroll cards right for my business and my employees?

There aren’t a lot of drawbacks to employers offering pay cards to employees as part of a payroll program. With a large number of financial institutions and payroll providers now offering pay card services, there are numerous programs to choose from to minimize the number of fees that might affect employees opting to use payroll cards.