Companies have several options for paying their employees, from writing checks to depositing salaries directly into bank accounts. Another option is to issue payroll debit cards to each employee and pay them through the cards. Sometimes called pay cards, reloadable payroll cards can simplify the process of getting paid for people who don’t have a traditional bank account. The cards also offer some notable benefits for employers that choose to use them.
Learn more about how paycheck cards work and whether they would be a good option for your company.
What Is a Payroll Card?
Reloadable payroll cards are a lot like debit cards. The cards provide access to money to a user. A person can use payroll cards to make purchases at stores or online or to withdraw cash from an ATM.
Although the cards are linked to money, they aren’t linked to a savings or checking account, making them a good option for unbanked people who either can’t or don’t want to open a traditional bank account. For the unbanked, payroll cards eliminate the need to bring a paycheck to a check-cashing outlet each payday.
While payroll debit cards look like credit cards and traditional debit cards, there are distinct differences between them. Unlike credit cards, payroll cards don’t require people to have a certain credit score or a good credit history. Payroll cards don’t charge interest since the person using the card isn’t borrowing money. It’s also harder to overdraw using a payroll card, as many cards don’t allow the user to spend more than is loaded onto the card.
How Do Prepaid Payroll Card Programs Work?
If an employer uses a paycheck card to pay employees, the process of getting paid has some things in common with getting paid via check or direct deposit into a bank account. The employee gets the card on their first payday. Any funds loaded onto the card are available for the employee to use right away. On subsequent paydays, the amount an employee is owed gets loaded right onto the card. They can use their earnings immediately without having to wait for a check to clear.
Not all payroll cards are the same. Some programs allow cardholders to overdraw from the account, spending more than the balance on the card. Others don’t allow for overdrafts. Different cards also charge different fees to users. Some examples of fees associated with paycheck cards include the following:
- Activation fee
- Purchase fee
- Inactivity fee
- ATM fee
- Customer service fee
- Reload fee
When employees sign up to get paid by a pay card, it’s up to the employer to provide them with a list of all the fees associated with the card before an employee makes their decision.
Pay cards are more protected than cash or checks if the card gets lost or stolen. Depending on when a person reports the lost card, they might only be responsible for up to $50 worth of fraudulent charges on the card. The employer can cancel the lost or stolen card and issue the employee a new card with the balance loaded onto it.
How Payroll Cards for Employees Benefit Businesses
Using pay cards to pay your employees and contractors can benefit your company in several ways. Most notably, pay cards help you save time and money. You can use the cards for regular payroll, to pay contractors who provide services to your company sporadically, or to reimburse employees for expenses. Some noteworthy benefits of using prepaid debit cards for payroll include:
- Eliminate paper checks: Paper checks are an expensive and cumbersome way to pay employees and contractors. At the end of each pay period, someone needs to be responsible for issuing the checks and ensuring that they get into the hands of the right payees. Once the checks go out, employees need to deposit or cash them. There’s a chance a paycheck will get lost or destroyed. It could also take an employee a while to cash the check, which can delay a company’s account reconciliation. If you introduce pay cards, you can say goodbye to payments by check for good.
- Streamline the payroll process: Issuing payroll cards to employees and contractors lets you switch to a fully electronic, automated payroll process. Employees get paid right on time, every pay period. Their salary shows up on their pay card immediately, and they don’t have to wait for a check to clear or for a deposit to make its way to their bank account.
- Reduce the chance of fraud: Using payroll cards can help protect your business and your employees from fraud. People can easily steal paper paychecks, cashing the earnings of their co-workers or complete strangers. If the checks get mailed on payday, they could be lost in the mail or intercepted by a bad actor. Payroll cards usually have built-in fraud protection to minimize the risk of theft or loss.
Pros and Cons of Reloadable Payroll Cards
For the employees and contractors who get paid via a payroll debit card, the cards offer a few advantages as well as potential disadvantages.
Advantages of Payroll Cards
One of the biggest advantages of payroll cards is that the cards offer people who don’t have access to a traditional bank account a quick and relatively affordable way to get paid. People can cash checks without a bank account but at a cost. Check cashing fees might be a flat rate, such as $4 for a check with a value under $1,000 and $7 for checks over $1,000 or they might be a percentage of the check’s value, such as 1.99% The fees can really eat into a person’s income, depending on how much they earn.
Another notable advantage of getting paid via a prepaid card is that the money is immediately available. An employee doesn’t have to wait for their paycheck to clear or for the bank to open to get access to their funds.
Payroll debit cards also give unbanked people or those who don’t have access to credit cards a way to make electronic bill payments or to shop online. The cards can be linked to automatic bill pay programs and used like any other debit card when shopping online. A payroll card can also be a tool that helps people better manage their money and avoid overspending.
Disadvantages of Payroll Cards
For many people, the biggest disadvantage of payroll cards is the cards often charge fees. The fees vary based on the card program and payroll card providers. Employers who are concerned about the fees associated with the cards can shop around for an option that won’t charge users a lot of fees.
Issue Virtual & Physical Debit Cards With Hydrogen
If your company wants to issue virtual or physical debit cards, Hydrogen can help you. Our no-code platform makes it quick and easy to issue cards. Request access today to learn more.