Paper or Plastic? The Pros and Cons of Paycards
Paper or Plastic? The Pros and Cons of Paycards

Paper or Plastic? The Pros and Cons of Paycards

Paycards are an alternative method of paying employee wages—instead of payment via paper check or direct deposit, an employee’s pay is loaded onto a debit card each pay period. These cards eliminate the need for a traditional bank account and, in some states, can enable companies to go completely paperless when combined with direct deposit. Many employers have implemented a paycard system, but it’s important to weigh the advantages and disadvantages of paycards before making a decision to switch.

Using a paycard system

Generally, paycard systems work in the following way:

  • An employer establishes an account with a paycard program and deposits money into their account.
  • The program or its partner bank issues the paycards.
  • Employees receive a PIN and can use their card as if it were a traditional debit card.
  • Employees’ wages are deducted from the employer account and are loaded onto the paycard every pay period.

Employer costs depend on the volume of workers using the cards and fees imposed by the bank and the program. Employees may be charged fees including monthly fees, ATM fees and withdrawal fees depending on the program. But choose your provider carefully. Depending on which state your business is in, it may be illegal to charge fees to employees.

Naturally, the mention of so many potential fees has raised red flags surrounding the use of paycards. Because of this challenge, federal law requires businesses to offer at least one other type of payroll distribution (paper check or direct deposit) to its employees.

The case for paper checks

  • Paycards can turn out to be a costly option for employees. For example, the New York Times found that one provider charged $1.75 for ATM withdrawals, $2.95 for a paper statement, $6.00 to replace a lost or stolen card, and $7.00 for inactivity fees. Some companies even charge a fee for calling to check the available balance on the card.

  • Payroll laws in some states prohibit employers from compelling their workers to receive their pay in ways that cost them money, and some paycard systems do just that by collecting so many fees. Depending on the program, paycards may not necessarily reduce the processing costs for the business.

However, despite these criticisms of paycards, they can be an advantageous option for companies that partner with the right provider.

The case for plastic paycards

  • 22% of U.S. households in America today are considered “unbanked.” This means they do not have access to a mainstream bank account or the financial services it provides. These families cannot receive direct deposit payments.
  • By switching to paycards, many unbanked employees can save up to a week’s worth of salary they would have otherwise lost to the accumulation of fees such as payroll check cashing charges or penalties from payday lenders.
  • Employees can use paycards without a credit check or any bank account requirements.
  • Paycards and direct deposit can be cheaper than paper checks—by up to $3.15, according NACHA, The Electronic Payments Association.
  • For most employers, paycards are easy to set up and provide the benefit of safety and convenience.
  • Paycards allow companies to go mostly paperless, even if some of their employees do not have bank accounts.

Paycards can reduce payroll costs for employers and offer a convenient choice for employees. However, it’s important to research your options, understand the associated costs (for you and your employees), and create a plan to introduce the program to employees before you decide to implement paycards. Learn more about Paycor’s employee payment options, including secure and easy-to-use paycards.

Paycor guided hr software tour

More to Discover

Webinar: COVID-19 Summit- BROKER HAPPY HOUR: Your Clients’ Most Burning Questions - Answered - 4/23/20 @4pm ET

Webinar: COVID-19 Summit- BROKER HAPPY HOUR: Your Clients’ Most Burning Questions - Answered - 4/23/20 @4pm ET

Exclusive session for Paycor PartnersJoin a panel featuring Paycor experts and broker partners as they discuss the newest coronavirus legislation, what it means to businesses and what resources Paycor offers to stay on top of the changing regulations. They’ll also cover the most frequently asked questions brokers are hearing from clients and how to best address these topics. Bring a beverage of your choice, come ready with your own questions and join us.Speakers: Shaun Scott, Senior Vice President of Strategic Channels at Paycor and Scott McGohan who is the CEO of MCGOHAN BRABENDERThursday, April 23, 2020 4pm ET

Webinar: COVID-19 Summit - CUSTOMER EXCLUSIVE: 10 Paycor Product Features to Leverage - 4/23/20 @3pm ET

Webinar: COVID-19 Summit - CUSTOMER EXCLUSIVE: 10 Paycor Product Features to Leverage - 4/23/20 @3pm ET

Join Paycor’s Director of Product Marketing, Tim Ruge, for an inside look at a 10 product features available within Paycor’s HCM platform to help your organization during this crisis. Tim will walk through each of the features to help ensure your organization is aware of all the ways Paycor’s technology can support your business. Speaker: Tim Ruge Tim Ruge is Paycor’s Director of Product Marketing, focusing on the HR Center of Excellence and various compliance topics. Since joining Paycor in 2012, Tim has led their efforts in getting customer feedback and helping deliver product features and content that helps Paycor’s customers make a difference in their organization. Tim has led the planning, development and launching of Paycor’s...

Employee’s Guide to Working from Home

Employee’s Guide to Working from Home

How to Work from Home (Without Going Crazy)Fortunately, most people have never had to deal with a massive virus outbreak such as the one we’re experiencing now. Unfortunately, that makes managing the situation with the COVID-19 pandemic an entirely new realm for both businesses and employees. Along with diligent handwashing, social distancing is key to preventing the spread of the disease. In response, many employers are adopting risk reduction strategies and encouraging employees to work from home (WFH) for at least two weeks. For companies that are largely made up of offsite workers, this approach generally won’t pose a challenge; however, many companies have never worked that way and, as a result, either have no formal policy or they’...

How To Work From Home with Kids

How To Work From Home with Kids

The spread of the coronavirus (COVID-19) has had an enormous impact on all of our day-to-day lives. From toilet paper shortages to restaurant closings, we’ve all had to make some serious lifestyle adjustments. Employees who can do so are being asked to work from home. And schools in many areas of the country have been closed until further notice. The result is that many parents who have never previously worked from home have to now… and if they don’t have other childcare options, they have to try to focus on their jobs while simultaneously parenting their children. Working from home is an adjustment any way you look at it. Working from home with children adds a whole new level of complexity. Following are a few tips that help if you find...