How Payroll Cards Work

Employees can use these cards virtually anywhere a debit card is accepted, including with merchants and ATM machines…

Today, many businesses use direct deposit each payday. It works for nearly everyone: it’s less expensive than checks and saves workers the hassle of going to the bank and waiting for the check to clear. But not everyone has — or wants to use — a bank. That’s why many employers use payroll cards.

How Payroll Cards Work

In brief, payroll cards work like debit cards onto which employers can credit their workers’ wages. The employees can use these cards virtually anywhere a debit card is accepted, including with merchants and ATM machines. And they don’t even need a bank account to do this, which gives the cards a major advantage over paper checks, which typically require a bank account to cash.

And employers like payroll cards because they’re a much cheaper solution than paper checks. Indeed, according to one estimate, employers save $2.75 per check when switching to payroll cards. Also, with no paper checks floating around, paycheck fraud is less likely. Businesses with multiple locations also save on the cost of express mail deliveries of paychecks to remote locations.

Know Regulations and Best Practices

However, payroll cards are not without controversy, and there are regulations that govern their use. In the past, some employers found themselves with both legal and public relations problems when they failed to give employees a free option for accessing their wages. That is, employees could find that they had to pay a fee to get their money, so they in fact were not getting their full wages. Rules and best practices now dictate that employees have at least one method of getting their full wages without paying the equivalent of an ATM fee, for example, to get their money.

To that end, the American Payroll Association has published a list of a guidelines to help ensure that payroll cards work for both employers and workers.

Below are some excerpts:

• Employees must be able to access their full wages in cash at least once each pay period without fees.
• Employees must have a choice of wage payment method and be able to change it.
• Employers should offer a payroll card that is widely accepted.

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