Paying Employees with Paycards? The Pros and Cons
woman-looking-at-payroll-paycard

Paying Employees with Paycards? The Pros and Cons

With the rise and ease of direct deposit, paper paychecks have pretty much gone the way of the dinosaurs. But, did you know there’s another paperless option you can use to pay your employees? Paycards offer a distinct advantage to employees who are underbanked – those who have a bank account but rely largely on unconventional finance options such as check cashing services – or unbanked – those who don’t have a banking relationship at all. Their wages are simply loaded to a reusable, refillable card that can then be used at points of purchase or ATMs.

Estimates from a 2017 Federal Deposit Insurance Corporation (FDIC) survey showed that 6.5% of households in the United States were unbanked, representing approximately 8.4 million households. Additionally, 18.7%, or 24.2 million, were underbanked. More than 30% of these households have an annual family income of $25,000 or less. And, while unbanked and underbanked employees can be found in all industry segments, the greatest concentration can be found in construction, staffing, hotels, and franchise businesses such as restaurants.

Pros of Paycards for Employees and Employers

Providing payments directly through a debit card saves you money by not wasting it on the paper used to print checks. Payroll debit cards for employees also eliminates the manual preparation, printing and distributing required from your payroll department, letting them focus on other tasks and saving your company money. Additionally, using a paycard can save your unbanked employees time and eliminate the exorbitant fees charged by expensive check-cashing stores and predatory payday lenders. And, they get the same legal protections from fraud that debit card holders have.

paying-with-paycard

Paycard Challenges

As with any form of pay, paycards do have some considerations to look out for. Depending on the provider you use, the cards can hit employees with fees for items such as monthly maintenance, point-of-sale charges, ATM use, and some even charge for calling to check the card balance. It wouldn’t take many $1.50 ATM fees to wipe out an hour’s worth of work for employees who make minimum wage.

Another consideration: although employee paycards can be a money-saver for your company, you legally can’t require employees to switch to that payment method. You have to provide the option of a paper paycheck or direct deposit.

Best Practices for Payroll Card Use

If your company decides to use paycards, it’s best to follow a few simple rules to help ensure you stay in compliance with state and federal laws:

  • Do not make the paycards mandatory; ensure you have other pay options.
  • Select a paycard company that has limited fees.
  • Ensure that you disclose all details about the paycard versus other pay options.
  • Ensure that the paycard company you select allows employees to withdraw the full amount of their pay each pay period in multiple withdrawals without fees.
  • Ensure there is a sufficient number of ATMs and stores nearby where the card can be used for purchases or cash withdrawals.


Subscribe to Our Resource Center Digest

Enter your email below to receive a weekly recap of the latest articles from Paycor's Resource Center.

Check your inbox for an email confirming your subscription. Enjoy!

More to Discover

Leave of Absence Policy and Acceptance Letter Template

Leave of Absence Policy and Acceptance Letter Template

Every business needs a leave of absence policy that clearly lays out how employees can apply for time away from work, and what the terms of this leave will be. There are many reasons an employee may require a leave of absence from work and while employers usually have the right to reject a request, it’s almost always the right call to allow employees to take leave.The distress and uncertainty caused by COVID-19 has only made it more important that businesses take an understanding approach to employee welfare, even if they are not eligible for FMLA leave. Whatever the reason an employee needs some time away from work, it’s important that, when accepting such a request, employers lay out exactly what it means for an employee’s status in...

Webinar: Post COVID-19: Reimagining the Future of Work

Webinar: Post COVID-19: Reimagining the Future of Work

Join us for a special roundtable discussion on what the future holds for HR leaders post COVID-19 featuring HR experts Jennifer McClure, Jon Thurmond, Wendy Dailey and Joey Price. They will discuss a variety of topics including how to navigate this new normal, new challenges facing HR leaders, personal experiences on motivating employees and keeping engagement strong and much more.

Webinar: How to Tackle HR with a Team of One

Webinar: How to Tackle HR with a Team of One

The way business leaders manage HR at their organization now can cripple or jumpstart long-term growth for their business. Watch now to discover tips and tricks on managing compliance, recruiting, performance management, training and HR technology. Register now! Speaker: Lori Kleiman Lori Kleiman is a business expert with more than 25 years of experience advising companies on HR issues. Her background as a human resources professional and consultant gives her unique insight on how HR professionals and executives can work together effectively to achieve business goals. Her programs are designed to provide critical HR updates and best practices to small businesses.

Why HR Technology Matters Now More than Ever

Why HR Technology Matters Now More than Ever

When a crisis hits, the right HR technology gives business leaders the data, tools and support they need to make important decisions quickly. In this report, Josh Bersin breaks down the four key benefits of HR technology and demonstrates through case studies how leaders can leverage it to solve problems and grow.