February 22, 2023Payroll

Introduction to payroll cards for your business

One way to attract and retain workers is to offer easy and flexible financial tools. For many businesses, this means offering better payment alternatives such as payroll cards.

Payroll cards are a dramatically growing trend among various businesses. The Mercator Advisory Group research shows that the amount of money loaded onto pay cards increased from $40.3 billion in 2017 to $51 billion in 2021.

Payroll cards can be an excellent alternative to other employee payment methods as they provide easy access to workers’ wages. Payroll cards are different from other pay methods, and the technology that powers them is also unique. In this article, we’ll introduce you to payroll cards and explain how they work.

Want to offer instant payouts to your workers at no cost to your business? Learn more about the Everee Visa® Pay Card.

What is a payroll card?

Payroll cards for employees (sometimes referred to as pay cards) function much like debit cards and provide workers quick access to their wages. They are usually issued by financial institutions and managed through a third-party payment provider like a payroll system. Most pay cards usually come with a digital wallet that supports online transactions

Employers use payroll cards to pay their employees as an alternative to direct deposits and other traditional payment methods like checks. Employers load wages onto the card and workers can then withdraw or use the money as they wish. Payroll cards can be used anywhere that accepts debit card payments, including retail stores, restaurants, and online merchants. Some payroll cards may even offer rewards or cash back programs.

A pay card offering is becoming increasingly popular with businesses in hourly and contract-based industries due to higher amounts of unbanked workers. But high-earning workers also see the appeal. “Persons with incomes exceeding $100,000 also find today’s payroll cards appealing,” wrote C. Sue Brown, director of  the Mercator Advisory Group and author of the summary report titled “The Evolution of U.S. Payroll Cards in the 21st Century.” 

Direct deposit vs. payroll cards

Direct deposits involve making payments through an electronic transfer from an employer’s account to an employee’s checking or saving account for net wages earned. The payment is initiated by the employer and typically takes one business day to process. If a worker doesn’t have a bank account, it’s impossible for a direct deposit of funds to be made.

Funds for a payroll card and released in much the same way as a direct deposit, but instead of going into a checking or savings account, the funds are loaded onto a prepaid card. The employee can then use the card to make purchases or withdrawals just like they would with a debit card.

Payroll cards have a number of advantages over direct deposit, particularly for employers who have workers that are unbanked or underbanked. According to the FDIC, in 2019, 7.1 million American households didn’t have bank accounts. For these workers, a payroll card offers a convenient way to access wages without having to open a bank account. In addition, pay cards can save employers money on check-cashing fees and other banking services.

Uses of payroll cards 

For employers, payroll cards can save time and money on check-cashing fees and other banking services. Payroll cards can be viewed as an investment in employee attraction and retention, since alternative payment methods influence a worker’s choice of employer.

Workers can use payroll cards to make purchases, get cash back, pay bills, and transfer funds. Workers can withdraw their wages via ATMs and bank tellers. Alternatively, they can use the cards at point-of-sale transactions to pay for everyday purchases, such as groceries (much like swiping a credit card when checking out). 

Most payroll card providers offer a digital wallet that allows users to manage their account online or through a mobile app. From the app, employees can check their account balance, view transaction history, and transfer funds to other accounts. Some payroll card providers also offer rewards programs that allow employees to earn points or cash back on purchases.

Understanding how payroll cards work

The technology behind payroll cards is similar to that of a debit card. A payroll card is linked to an account that stores the funds an employer loads onto the card. When a worker makes a purchase, the funds are transferred from the account to the merchant in real-time.

Payroll cards use both contactless and contact EMV (Europay, Mastercard, and Visa) technology to make secure transactions. This means that the payroll card can be used in two ways: by swiping or dipping the card at a point-of-sale terminal, or by holding the card near a contactless reader.

The funds on a payroll card are FDIC-insured, just like funds in a checking or savings account. This means that if a payroll card provider goes out of business, workers will still have access to their wages.

Some payroll card providers also offer dispute resolution services in the event that a worker is wrongly charged or there are unauthorized transactions on the account.

Employers can choose from a number of payroll card providers, each of which offers different features and benefits. When choosing a provider, employers should consider the needs of their business and their employees. For example, some providers charge monthly fees, while others don’t. Some provide cash-back rewards programs, while others don’t. Some offer digital wallets that allow workers to manage their account online or through a mobile app, while others don’t.

To find the best payroll card provider for your business, consider your needs and compare the features and benefits of each provider.

Are there any fees for using payroll cards?

Pay cards don’t typically charge workers monthly or maintenance fees, but might charge for other things or to use certain features such as:

  • ATM cash withdrawals
  • Activation
  • Inactivity (if the card has not been used for a certain period)
  • Purchase fee
  • Cash reload fee
  • Customer service fee

Many state laws dictate free access to some or all of the funds on a payroll card. For example, some states require that workers be able to make two free ATM withdrawals per pay period. Employers should check state laws to see if there are any restrictions on payroll card fees.

Keep in mind that employers can’t force workers to accept this payroll cards as a sole payment method. Other payment options must be available in addition to prepaid cards, such as direct deposits or paper checks. This way, an employee can choose to avoid the payroll card fees by having their wages sent directly to their bank, credit union account, or to a different prepaid card.

Payroll cards: A positive benefit

Although payroll cards have been around for decades, a recent surge in adoption has proven that workers want flexible, easy options when it comes to pay. Employers benefit from payroll cards as well, as they offer an attractive benefit among a sea of eager employers. Adopting a payroll card program shows your workers you’re invested in their financial wellbeing, and that you’re willing to offer the modern amenities they crave.

Pay 1099 contractors and W-2 employees instantly—and it’s free for employers. Check out the Everee Visa® Pay Card.