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Understanding Payroll Cards

There are more than seven million U.S. households without a bank account, according to the FDIC. As you can imagine, payday can be pretty tricky for those folks. Check-cashing facilities charge high fees and can be risky places. Once employees have their wages in hand, they are faced with paying for living expenses and bills in a technology-based world.

Payday can be challenging for employers too. Many of them use direct deposit into employee’s bank accounts because it saves time and money over issuing paper checks. They lose those efficiencies when they revert back to printing checks.

There’s a solution for employees and employers: payroll cards.

What are Payroll Cards?

Payroll cards are reloadable prepaid debit cards. Employers can direct deposit employees’ wages on the card so employees can take advantage of its convenience and immediacy. Adoption of payroll cards has grown in the past few years. In a 2019 Bloomberg Tax & Accounting survey, nearly 30% of participating companies reported using payroll cards – a dramatic increase from 2% in 2015.

Most low-cost payroll cards are Visa® or Mastercard® and are issued through banks or other financial institutions. They come with apps that enable employees to monitor their account balances and transactions, and receive account statements.

Payroll Card Advantages for Employees and Employers

There’s a reason 93% percent of U.S. workers get paid by direct deposit. It’s more efficient and cost-effective than issuing paper checks.

“Whether a company has two or two hundred employees who don’t have bank accounts, a payroll card can help increase employee participation in direct deposit,” said Kathy Bluhm, Assistant Vice President of Prepaid Card Partnerships at Commerce Bank. “Additionally, direct deposit payroll cards can help reduce risk of check fraud and simplify the reconciliation process.”

Payroll cards also have many benefits for employees. Economists at Nerd Wallet estimate people without bank accounts are more likely to rely on using expensive money orders and are six times more likely to use costly check-cashing services that charge fees from 1%-10% of a check’s value. With a payroll card, employees can shop or pay bills online, make purchases and withdraw cash at nationwide ATMs.

“While any company can save time and money with payroll cards, we have a lot of clients in the restaurant franchise, construction and cleaning services industries as well as employers who have a lot of teenage employees” said Kathy Bluhm, who oversees more than 350 organizations using payroll cards at Commerce Bank.

Tips for Getting Started

  • Ask about implementation: One thing to consider is how easily payroll cards will integrate with your existing payroll software. Will the use of payroll cards require any new software, add-ons or software training? How quickly can a new employee be issued a payroll card? What are the start-up costs?
  • Avoid surprise fees: Payroll cards can vary in terms of fee structures, particularly for ATM withdrawals or cashback purchases, so be sure and ask about any cardholder fees. Also, find out what costs are associated with replacement cards.
  • Compare services: Inquire about available customer support services for your employees. Is it 24/7/365? Is it live or automated? Are bilingual options available?
  • Check instant-issue options: Determine what options are available if the payroll card is lost or stolen. Can employees can get a replacement card immediately?
For key elements of a good payroll program plus other best practices, see Consumer Action’s An Employer’s Guide to Payroll Cards.