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Who doesn’t like payday? Your employer hands over your wages in the form of a paycheck or directly deposits funds right into your bank account. For more and more workers, however, payday means getting money on a payroll card. Payroll cards are a type of prepaid debit card provided by employers in lieu of a paycheck or a direct deposit.
According to a 2017 report from the Aite Group, a research and advisory firm, an estimated 6.4 million payroll cards will be in use by the end of 2019. The Aite Group estimates that number will increase to 8.4 million by the end of 2022.
Below, we’ll discuss how payroll cards work, identify a few things to watch out for, and answer some frequently asked questions.
How do payroll cards work?
Employees use payroll cards to withdraw their earnings at ATMs and make purchases anywhere that the card network — e.g. Visa or Mastercard — is accepted. Some cards even offer the option to sign up for online bill payments. But employees who are offered these cards may face an array of fees to access their pay, plus other potential pitfalls.
For employers, printing and sending checks can be expensive and cumbersome. Direct deposits are one way for an employer to avoid the costs associated with physical paychecks, but it’s not a viable option for employees who lack bank accounts.
“There are lots of people who are unbanked or underbanked but still have jobs,” says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling. “If they get a paper check, they have to go to a check-cashing company that is likely to charge a very high fee.”
Payroll cards can be a great way for employers to pay unbanked or underbanked employees, giving them access to their money without the expense of visiting a check cashing firm. However, these cards are not always free of fees and complications.
What are the problems with payroll cards?
Before you agree to sign up for a payroll card, make sure you read the terms and conditions closely and understand how the card works, what fees you’ll have to pay and which usage-based fees may apply. Benefits, drawbacks and fees can vary depending on the card provider. Here are a few things to look out for:
There may be fees to access your pay
New consumer protections and disclosures for prepaid cards and payroll cards went into effect on April 1, 2019. The rules include a requirement to provide a clear chart of common fees to users before they sign up for a card. This should give users a clear, simple fee chart to help them comparison shop and understand what fees they may face when using their payroll card.
Taking the E1 Visa® Payroll Card as an example, here are some of the fees that payroll cards might charge:
E1 Visa® Payroll Card Fees
Monthly Maintenance Fee:
$2.95 in months when there is no payroll deposit on the card; no fee in a month when there is a payroll deposit.
ATM Cash Withdrawal MoneyPass Network Fee:
$1.50; Users get one no-charge withdrawal transaction per month
ATM Cash Withdrawal Non-MoneyPass Network Fee:
ATM Cash Withdrawal Foreign Fee:
ATM Balance Inquiry Fee:
ATM Decline Domestic Fee:
ATM Decline Foreign Fee:
Funds Transfer Fee:
Paper Statement Fee:
$2.00 (per monthly paper statement requested)
Lost/Stolen Card Replacement Fee:
Express Delivery Fee:
Account Closure Fee:
Currency Conversion Fee
3% per transaction
Looking more closely at this fee schedule, it’s clear you can avoid some of the fees by being conscious of how you use the card. The monthly maintenance fee is waived in months when there are deposits on the card from your employer(s), and you get one free ATM withdrawal per month. However, besides the single free ATM withdrawal, it’s difficult to avoid paying fees to access your money, and the account closure fee is high and unavoidable.
Not all cards offer the same features
The payroll card your employer offers may not be a great fit with your financial habits or your normal routine. For example, these cards may be part of large ATM networks and may offer free withdrawals from in-network ATMs. However, like with the E1 Visa card above, there may still be a charge for in-network withdrawals. If there aren’t in-network ATMs nearby, you could wind up regularly paying higher out-of-network withdrawal fees.
Some cards offer additional ways to access your money without fees, such as getting cash back when you make a purchase or offering paper checks that are tied to the account.
Another potential drawback is that these accounts may limit how much money you can keep in the account, and how much you can withdraw or transfer each day.
Holds may be placed on your account for certain purchases
Certain transaction types can trigger a payment hold could be put on funds in your account when you’re using your card for purchases. For example, if you use the card at a gas station, additional funds in your account might be put on hold and it could take several days for the transaction to finalize and the funds to be released. This could mean an extra $100 that’s in your account won’t be available for the following week.
It’s not a stepping stone toward a checking or savings account
“In some ways, [a payroll card] could be working to the detriment of some employees because it’s keeping them from seriously considering opening a checking account at a bank or credit union,” says McClary. “The money isn’t working for you.”
Conventional checking accounts lack many of the small fees that can make a payroll card a bad deal. Additionally, conventional banking options include savings accounts with higher interest rates.
If you need to use this type of card, you may have trouble opening a checking or savings account due to a negative bad banking history — perhaps you bounced a few checks or closed an account that had a negative balance. Remember, many financial institutions offer second chance bank accounts, so don’t let a bad payroll card deal prevent you from pursuing a regular banking account. McClary adds that, “there are programs available in every state to help people open a checking or savings account.”
Pros and cons of payroll cards
- Quickly and electronically receive your pay, avoid check-cashing fees and keep your money in a secure account rather than having to worry about carrying cash.
- Many cards offer free bill pay services, which can make it easier and cheaper to pay your bills versus using money orders or cashiers’ checks.
- You can manage your money online or with a mobile app (if the card company offers one).
- Payroll cards charge fees that can be difficult or impossible to avoid.
- Very often you have no choice over which payroll card the company will offer.
- The card might have a maximum daily withdrawal or transfer limits.
- You won’t earn interest on your money and it may be more tempting to spend money when you don’t separate your savings.
FAQ on payroll cards
State laws may require your employer to give you free access to some or all of your wages at least once each pay period if you use a payroll card. Depending on where you live and the program, your card could waive the first ATM-transaction fee or give you an alternative way to access your wages for free, such as a check that’s linked to the account.
No, you do not. Employers must give you at least one alternative to using a payroll card. However, this alternative could be a direct deposit (rather than a paper check), which isn’t especially helpful for unbanked employees.
If you don’t like the company’s card offering and don’t want or can’t get a bank account, you could sign up for an alternative prepaid debit card on your own — check out our top picks. You may then be able to sign up to have your pay directly deposited onto the card you chose rather than one your employer picked.
Some cards may offer this feature, but others do not. Review the terms of your employer’s program to see if this is an option.
Some cards will let you get cash back when making a purchase, which could be a convenient and free way to get cash from your account.
There’s no credit check or requirement to get or use a payroll card.
Some cards come with zero liability coverage from the card networks, like Visa or Mastercard. Even without that level of protection, you’ll have the same protections as you would with a debit card. You won’t be liable for any transactions after you report your card lost or stolen and you’re limited to $50 of liability for charges that already occurred if you report the card lost or stolen within 48 hours.