Payroll card definition
/What is a Payroll Card?
A payroll card is a prepaid card on which employee pay is loaded. This is done instead of issuing a paycheck or a direct deposit payment into a bank account. This is useful when you have employees who do not have a bank account and who do not want one; they are either asking for payment in cash or are taking their paychecks to a check cashing service that charges a high fee. When payroll cards are used, the company transfers funds directly into the pay card, so there is no need for a check cashing service. Employees can make purchases directly with the card, or use it to obtain cash through an ATM. The company still issues a remittance advice to all pay card holders, so they can see the detail behind the amounts being paid to them.
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Advantages of Payroll Cards
Here are several additional advantages of having pay cards:
Check fees. Pay cards eliminate the possibility of having to pay the occasional stop payment fee for a lost paycheck.
First payment. Direct deposit is not usually possible for an employee’s first payment, but can be achieved with a pay card.
Low fees. ATM cash withdrawal fees are much lower than the fees charged by check cashing services. In some cases, your bank may even waive the ATM fee, if you are withdrawing cash from an ATM not associated with your bank.
Security. The pay card is protected by a personal identification number.
Special payments. There is no need to cut a check for special payments, such as for an award or pay adjustment. Instead, simply send the cash to the pay card.
Statement. Employees receive a monthly statement, detailing payments into and withdrawals from their account.
Unclaimed property. Once funds are transferred to a pay card, they are the property of the recipient, so the employer no longer has to concern itself with remitting unclaimed pay to the state government under escheatment laws.
When compared to direct deposit, pay cards are the more attractive option for many employees. However, since direct deposit has been available far longer, pay cards have not gained as much traction in the marketplace.
Disadvantages of Payroll Cards
The main disadvantages of using payroll cards are as follows:
Fees and hidden charges. Many payroll cards come with various fees, such as ATM withdrawal fees, balance inquiry fees, and inactivity fees. These charges can significantly reduce an employee’s net pay, especially for those who frequently access their funds. Without careful monitoring, users may be unaware of how much they are losing to these incremental costs.
Limited consumer protections. Payroll cards may not offer the same level of fraud protection as traditional bank accounts or credit cards. If a card is lost or stolen, recovering funds can be challenging and time-consuming. Some issuers may also lack robust dispute resolution processes, putting users at financial risk.
Access and usability issues. Employees without internet access or smartphones may struggle to track their balances or transaction history. Additionally, some merchants or service providers may not accept payroll cards, limiting where they can be used. These restrictions can create inconvenience and force employees to rely on costly cash withdrawals.
Terms Similar to Payroll Card
A payroll card is also known as a pay card, prepaid payroll card, and a payroll debit card.