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What are the pros and cons of payroll card?

Payroll cards are a growing trend in small business: About 14 million payroll cards were in use in 2017. Payroll cards provide easy access to paychecks without the need for a bank account or banking relationship. This can be crucial for many Americans who cannot (or choose not to) open a bank account.

What is a payroll card?

Payroll cards allow employees to access their paychecks without setting up a bank account. They function like debit cards: Payroll cards are loaded with a paycheck each pay period and can be used to withdraw cash or make purchases. This can be an advantageous tool for small businesses with employees who don’t have bank accounts or don’t have a lot of banking options in their location.

Depending on which payroll card service you sign up for, it may be more cost-effective to provide a payroll card option to your workers. Printing and handing out checks can be expensive, and certain payroll companies may charge extra for things like direct deposit.

From a worker’s perspective, it’s important to understand the different fees associated with payroll cards, as they aren’t exactly like traditional debit cards. While it can be a great option for employees with no bank account, you’ll have to pay some fees, like monthly maintenance fees, ATM withdrawal fees, balance inquiry fees, fund transfer fees and account closure fees. The exact fees will depend on which company you’re working with.


The pros of payroll cards Cost effective and simple for employers

Using payroll cards eliminates the printing costs, administration costs, and check handling fees associated with paying employees by paper check. The employer simply loads the payroll card with the employee’s salary and a receipt is issued automatically. The cards can be reloaded each month and do not need to be replaced unless damaged or lost.

Instant, convenient use

The employee can use the payroll card immediately and no bank account is required. They are also saved the hassle of coming into the office to pick up a paycheck and take it to the bank to cash or deposit. In some cases, employees without bank accounts can enjoy a bank-like experience using a payroll card. Cards are issued by major credit card companies, such as Visa, or payment processors, and can be used anywhere that a credit or debit card is accepted. Therefore, employees can withdraw cash from ATMs, get cash back on purchases (where offered), make purchases, and use the card to make online payments through an online payment solution.

Good for money management

Employees can manage their money more effectively with payroll cards. There is no allowed overdraft, so it’s impossible to go into debt. Employees can add their own money to the payroll card if they wish, as well.

Payments are more secure

Payroll cards have security measures such as PIN codes and EMV chips that make transactions safer and prevent fraudulent use. In the event that a payroll card is lost or stolen, the employee simply reports this loss and can receive a new card loaded with the existing balance. This is an obvious improvement over cash, which cannot be replaced if lost. Having a card also saves the risk of carrying cash – either receiving a cash salary, or cashing a paycheck. Cardholders can keep their balance on the card itself and only carry as much cash as they need at the time.


Payroll cards offer a digital delivery mechanism.

There are no delays involved with a payday when payroll cards are used by organizations instead of a traditional check. If there are natural disasters, blizzards, heavy rains, or other elements of delay that prevent the physical processing of a check, workers still receive their funds through the digital transfer on time. They don’t need to worry about picking up their check during regular business hours either. That makes it especially helpful for workers who telecommute or contract remotely.

There is more transparency available with payroll cards.

Payroll cards give workers the option to monitor all their account records in a way that cash purchases do not. Statements and transaction histories let workers know where they might be leaking funds. This process allows them to see where their withholdings are going too so they can make changes if necessary. Most employees find that the free access to these items helps them become budget-conscious, eventually leading to stronger financial health.


List of the Cons of Payroll Cards

  1. There are more fees to pay with payroll cards.

Payroll cards do have fewer fees than the average gift card. They also have more fees than other methods of payment, including debit and credit cards or checks. Most have a monthly maintenance fee which may or may not be covered by the employer. The E1 Payroll Card from Visa charges $2.95 per month unless there is a deposit to the card in the same month. There are balance inquiry fees, decline fees, and even account closure fees. Make sure to review the current fee schedule with your employer before agreeing to this form of payment.

  1. Payroll cards are sometimes restricted by local laws.

There are several rules in place that govern how workers receive their compensation. Most laws involve how employees can access their full paycheck without encountering a fee. There are rules in place that let some individuals choose the way they want to be paid, including by a physical check, which limits the cost-savings options available for the organization. Before offering this option, every company should review the local situation with their legal team to see if the pros outweigh the cons.

  1. Lost funds are challenging to recover with payroll cards.

The process to follow when trying to recover funds lost through fraud is extensive with a payroll card. Employees must report lost or stolen cards immediately to ensure they don’t suffer a financial loss from the situation. Some reports must happen within 48 hours for some card issuers. Make sure that you know the process involved for reporting unauthorized charges, then contact the card or your employer immediately, or you might find yourself responsible for the expense.

  1. The fees of payroll cards impact low-income workers the most.

There are laws in place which require an employee to have full access to their funds at least once during each pay cycle. That’s why you’ll find most payroll cards offering a first ATM transaction for free, along with some initial purchase fees being waived. Once you get past that no-cost element of use, however, the cost of using payroll cards adds up fast if you’re only working at $7.50 per hour. Many cards have a $1 point-of-sale fee, which means every transaction will cost more.


Direct deposit

Direct deposit is the most popular payment option for employers. Direct deposit is a type of electronic funds transfer (EFT). An EFT allows the transfer of money from one bank account to another. With direct deposit, you transfer the amount you owe your employees from your bank account into the employee’s account. Laws for direct deposit vary from state to state. Some states may allow employers to require mandatory direct deposit, while others do not. Make sure you understand your state’s direct deposit requirements along with federal laws. Contact your state for more information regarding direct deposit laws.

Direct deposit pros and cons

Weigh the pros and cons of implementing direct deposit in your small business.


Direct deposit is a win-win for both employees and employers. Many employers utilize direct deposit because it’s convenient. You can run payroll quickly with direct deposit. And, you don’t have to worry about wasting time printing or handwriting checks.

Employees can also instantly receive their wages after the money is deposited into their accounts. Employers don’t have to spend additional time paying employees. And, employees don’t need to wait for their money.

As a small business owner, the last thing you want to worry about is payroll fraud schemes. Direct deposit is one of the safest ways to pay employees. Unlike checks, direct deposit can’t be misplaced, lost, or stolen. And because you have more control, you don’t have to stress about an employee’s personal information getting into the wrong hands.


One downside to direct deposit is the fees. Employers usually have to pay various fees to utilize direct deposit, such as setup and transaction fees. And, employees might need to pay fees to open a bank account.

Another disadvantage of direct deposit is time sensitivity. You must collect time and attendance records and run payroll on time. Otherwise, your employees could suffer the consequences and not receive their wages by payday.