Can payroll cards replace direct deposit?

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.

This is not a small group, numbering about 30 million in the USA alone, but it does not apply to many employers who have few unbanked employees. However, payroll card features have gradually expanded, making them worth a second look. Payroll cards are superior to direct deposit in the following respects:

  • 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.
  • 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 There is no need to wait in a bank line, since funds are sent electronically, and can be withdrawn at any ATM.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.

Related Courses

Human Resources Guidebook 
Payroll Management