The Pros and Cons of a Payroll Card

What is a payroll card?

Payroll cards are prepaid debit cards employers use to pay employees their wages. They’re loaded with an employee’s compensation each pay period and can be used to withdraw cash or make purchases. 

“[Payroll cards] allow employees to access their earnings immediately without waiting for a check to clear or relying on a traditional bank account,” explained Brian Chasin, chief financial officer of SOBA New Jersey. “These cards function like a debit card, enabling employees to make purchases in stores or online, withdraw cash from ATMs and pay bills electronically.” 

Payroll cards allow businesses to pay unbanked or underbanked employees who might otherwise face costly check-cashing fees or delays in receiving their wages. “By offering payroll cards, employers can streamline payroll processing, reduce administrative costs and provide a more secure alternative to paper checks,” Chasin noted. 

Payroll card pros and cons

Before offering payroll card options to your employees, take time to understand their benefits and drawbacks.

Payroll card pros

• No bank account needed: Payroll cards are great for small businesses with limited banking options in their location or whose employees don’t have bank accounts.
• Replaceable: Lost or stolen payroll cards are usually easy to replace (often for a small fee).
• Easy access to wages: Workers can access funds from their payroll cards immediately and conveniently.
• Cost-effective: Depending on the payroll card service, payroll cards can be a cost-effective alternative to printing and distributing checks or paying direct deposit fees.

Payroll card cons

• No interest: Payroll cards do not earn interest.
• Can be lost or stolen: Like any physical card, payroll cards can be misplaced or stolen.
• Can incur fees: Employees may face fees for ATM withdrawals, balance inquiries, fund transfers, inactivity, monthly maintenance or account closure. “These fees can gradually reduce an employee’s take-home pay, making payroll cards less attractive when compared to other electronic payment options,” cautioned Peter Lai, chief financial officer of Engage Wellness. “Employees who rely on ATMs frequently or require cash access for daily expenses may find that these charges add up over time, offsetting the convenience of direct wage deposits.”

Payroll card providers

Specialized payroll card companies and many of the best online payroll services can help you set up and distribute payroll cards for your employees. Some of your choices include the following:

• Money Network: This company offers payroll cards and an intuitive online platform for managing them. It provides enhanced security, flexible deposit options and limited liability. All funds are backed by the Federal Deposit Insurance Corp. and its zero-liability protection helps ensure employees are covered if something happens to their cards. Money Network has over 20 years of experience in prepaid debit processing.
• Netspend Skylight One Card: Netspend runs one of the most extensive payment programs in the country and offers flexible enrollment and electronic reporting. Employees can access an online portal to view deposits and statements. They can also access 100 percent of their wages in cash by using a free Skylight check and cashing it at one of over 130,000 locations nationwide. As a full-service partner, Netspend supports setup, training, marketing and compliance.
• Rapid! PayCard: This payroll card from Mastercard and Visa offers a 100 percent e-payroll solution for its clients. There are several distribution options, including e-wallet payouts, digital checks and various payroll cards. It offers instant payment and electronic payroll delivery at no cost to the employer. It also gives both you and your employees access to electronic pay stubs and other convenient features.
• U.S. Bank Focus Payroll Card: U.S. Bank provides payroll cards to small businesses, making it one of the few major banking institutions that backs payroll card initiatives. Its payroll card offering includes fraud protection, online purchasing and 100 percent electronic payments. It also provides text and email alerts, cash-back rewards programs, built-in savings features and a mobile app.
• Wisely by ADP: Wisely is a payroll card provider backed by ADP, one of the largest payroll and human resources providers in the United States. (Read our ADP Payroll review to learn more.) It offers no-fee cash access at ATMs and banks, as well as cash back at retailers. The Wisely mobile app lets employees manage their funds on the go. The company also offers multiple sources of funding so you can connect other paychecks or tax refunds to your Wisely account. It’s compliant in all 50 states and has high-level support for small companies.

Payroll card alternatives

If your business offers payroll cards, you must also provide an alternative — typically direct deposit or paper checks — to comply with labor laws. You may also want to find payment methods that suit everyone who works for you.

“Direct deposit is a popular, fee-free alternative and digital wallets are growing in use as well, providing flexibility without the extra costs,” explained Taryn Pumphrey, president of Ledger Lift. “If your workforce lacks traditional banking access, payroll cards can be a great option, but direct deposit or mobile payments might be more cost-effective for others.”

Here are some options to consider.

Direct deposit

Direct deposit is a common form of automated clearing house (ACH) transfer. (The ACH network connects two bank accounts and supports both direct deposits and direct payments.) With direct deposit, your employees provide their checking or savings account information during the onboarding process, allowing your payroll provider or internal team to send their pay directly to their bank account.

While employees need a bank account to use direct deposit, it has clear benefits: It eliminates paper checks and workers can avoid extra trips to the bank.

PayPal

PayPal is a popular payment option for businesses that hire freelancers and contractors. Whether you work with one-time, seasonal or part-time help, PayPal can eliminate the need for paper checks or payroll cards.

Contractors can create and send invoices through PayPal, which helps you keep accurate records. When sending a payment, be sure to check the “Service” box — this correctly categorizes the payment, applies the right fees and gives the freelancer access to instant payment options.

Mobile wallets

With 3.4 billion digital wallet users worldwide, mobile wallets are becoming an easy, convenient way for businesses to pay employees — especially those who prefer digital-first options. 

As more banks support digital payments, employees can link their direct deposit to mobile wallets like Google Wallet, Apple Pay, Samsung Wallet and others. This can make it faster and easier to access their pay, especially when paired with instant payment options.

Paper checks

Despite the rise of digital payment options, paper checks are still widely used among small and midsize businesses. These companies may not want to pay for payroll software and likely view paper checks as a trusted and familiar payment method.

Cash

Paying employees in cash is legal, but it’s generally not recommended. While you might save on fees, cash payroll requires manual tracking, which increases the risk of human error, IRS scrutiny and unhappy employees. It also means more trips to the bank to manage cash flow and ensure you have exact change on hand. Once you’ve calculated your payroll, each payment has to be counted and delivered to employees by hand.

Jennifer Dublino contributed to this article.