Can payroll cards replace direct deposit?

A payroll card is a debit card into which employee pay is deposited. The original reason for these cards was to provide funds for unbanked employees.

 This is not a small group, numbering about 30 million in the USA alone, but it does not apply to many employers who have few unbanked employees. However, payroll card features have gradually expanded, making them worth a second look. Payroll cards are superior to direct deposit in the following respects:

• First payment is electronic. When paying an employee through direct deposit, the first payment to a new employee is with a check, since the bank wants to prenote the first direct deposit transaction. This is not the case for a payroll card, where the first payment can be issued electronically.
• Data collection. Direct deposit requires the employer to collect bank routing and account number information from employees, which may be incorrect or difficult to obtain. This is not needed for payroll cards, since the employer creates each account.
• Account lock down. Employees sometimes shut down their bank accounts and forget to inform the company that direct deposit payments must now be sent to a new location. Since the employer controls the payroll card account, employees cannot shut down the account.
• Termination pay. Terminated employees can be paid within one day through a payroll card, and there is no need for them to come back to the office to pick up a final check.
• Information security. Unlike direct deposit, an employer does not need to retain personal banking information for payroll cards, since it is setting up all accounts.
• Additional cards. Some card providers will issue extra payroll cards to other family members, which allows them to withdraw funds in other cities; this keeps the wage earner from paying wire transfer fees to send money to other family members.
• Pay routing. Some card providers now allow card users to automatically route incoming funds to personal bank accounts, though there is a one-day delay in the funds transfer.

Payroll cards have the following additional benefits over paychecks:

• Check cashing time and cost. There is no need to wait in a bank line, since funds are sent electronically, and can be withdrawn at any ATM. There is also no check cashing fee, though there may be an ATM fee.
• Unclaimed property. Since there is no check that an employee may not cash, there is no unclaimed property to track.

Do these benefits mean that it is time to convert to payroll cards? Most employees will probably stay with direct deposit, because they are accustomed to this payment approach. However, look for payroll cards to gradually encroach on the direct deposit and paycheck turf over the next few years.

Related Topics
How can I reduce payroll inquiries?
How many payroll cycles should I have?
Why switch to direct deposit?
What is the difference between a semimonthly and biweekly payroll?

Comments

[N. Raged]

These payroll cards are a scam. It's just a way for employers to cut cost by eliminating a data management service to handle payroll and forcing their employee's to pay for the cost of maintenance on a payroll card. It cost the employee money to check their balance, withdraw funds and if your rent (some apts require a money order) is more than $300 it can take several withdrawals to get the funds out. It's also up to the employee to set up the card and can keep that employee from receiving their pay for several days even weeks if a new card and account are need. The companies and banks that back and issue these cards do not take responsibility for any funds lost from theft, from unauthorized charges or from refunds credited back to the card after a canceled transaction. The cards are not secure at all, last year $9 million was stolen from payroll cards with information taken from a hacked ATM terminal. Its unfair that when ever a company wants to "cut cost" its always the employees that suffer through layoffs and now these payroll cards.

[Payroll Cards]

Expand electronic pay to all employees by offering payroll cards as a complement to your direct deposit program for those employees still receiving paper checks - everyone qualifies as no credit check or bank account is required....highly recommended...

[Kari]

I just received my final check on a pre-paid MasterCard debit card. I was told by my company to take the card to my bank and deposit the full amount. THIS because the company that issues the card charges exorbitant user fees. I thus took the card to Bank of America (my home bank) They are unable to use that card, and their ATMs cannot read it. Washington Mutual and US Bank also refused the card.

I called the issuing company's customer service dept. I was told that: 1) Any bank that issues Master Card will be happy to allow me to cash out the card, But, I must first have an account at that bank, and must also pay a fee, This turned out not to be correct. 2) I can go to one of four locations in town (three motels, one trucking company) and ask for a "Comcheck." Then I must call Customer Service (it sometimes takes an hour to get through) and they will register the check. I can then deposit the check in my bank. 3) I can deposit the money with the card-issuing company for ten days, and THEN receive the full amount, minus fees. Or, I can, "talk my bank into bending the rules."

So, whereas I once received an auto=deposited check, I now have a useless plastic card with a few inaccessable thousands. NEVER again!