Can payroll cards replace direct deposit?
/What is a Payroll Card?
A payroll card is a debit card into which employee pay is deposited. The original reason for these cards was to provide funds for unbanked employees who would otherwise have to be paid in cash.
Advantages of Payroll Cards
Payroll cards are superior to direct deposit in many ways, as noted below.
First Payment is Electronic
When paying an employee through direct deposit, the first payment to a new employee is with a check, since the bank wants to prenote the first direct deposit transaction. This is not the case for a payroll card, where the first payment can be issued electronically.
Data Collection
Direct deposit requires the employer to collect bank routing and account number information from employees, which may be incorrect or difficult to obtain. This is not needed for payroll cards, since the employer creates each account.
Account Lock Down
Employees sometimes shut down their bank accounts and forget to inform the company that direct deposit payments must now be sent to a new location. Since the employer controls the payroll card account, employees cannot shut down the account.
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Termination Pay
Terminated employees can be paid within one day through a payroll card, and there is no need for them to come back to the office to pick up a final check.
Information Security
Unlike direct deposit, an employer does not need to retain personal banking information for payroll cards, since it is setting up all accounts.
Additional Cards
Some card providers will issue extra payroll cards to other family members, which allows them to withdraw funds in other cities; this keeps the wage earner from paying wire transfer fees to send money to other family members.
Pay Routing
Some card providers now allow card users to automatically route incoming funds to personal bank accounts, though there is a one-day delay in the funds transfer.
Payroll cards have the following additional benefits over paychecks:
Check Cashing Time and Cost
There is no need to wait in a line at the bank, since funds are sent electronically, and can be withdrawn at any ATM. There is also no check cashing fee, though there may be an ATM fee.
Unclaimed Property
Since there is no check that an employee may not cash, there is no unclaimed property to track.
Do these benefits mean that it is time to convert to payroll cards? Most employees will probably stay with direct deposit, because they are accustomed to this payment approach. However, look for payroll cards to gradually encroach on the direct deposit and paycheck turf over the next few years.
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