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

Case Study: Ohio Catholic Credit Union

Case Study: Ohio Catholic Credit Union

After working with an unfriendly HR solution that outgrew their business needs and made running reports challenging, Ohio Catholic Credit Union turned to Paycor for help. Now, the HR team can easily create the reports they need and extract the right data to share with the Bureau of Labor Statistics and senior leaders. Best of all, the enhanced reporting capabilities has saved the VP of HR 20 minutes each time she generates a report. Check out the case study below and discover why Ohio Catholic Credit Union trusts their most critical people management and payroll needs to Paycor.

Webinar: Feature Focus: Manage Access (Paycor Customers)

Webinar: Feature Focus: Manage Access (Paycor Customers)

Find out how you can leverage Paycor's Manage Access to it's full potential. You will learn how to create and assign roles and privileges in the system based on responsibilities.

Case Study: Capital Brewery

Case Study: Capital Brewery

Complicated reporting, poor customer service and the feeling that they just didn’t have control over the HR functions they really needed led Capital Brewery in Madison, Wis., to seek a payroll and time and attendance solution that provide an efficient and seamless experience. “Partnering with Paycor saves us time. It allowed us to create the reports we need and made onboarding so easy,” said Capital Brewery accountant Dawn Westhoff. “From requesting time off, processing payroll or just answering HR questions, Paycor is helping us handle everything professionally.”

Franchise Payroll: Answering Tough Questions

Franchise Payroll: Answering Tough Questions

It’s no secret that payroll for franchisees and franchisors can be a hodgepodge of confusion. Who’s responsible for payroll? Often, it’s a toss-up. With so much confusion it’s easy to fall victim to major fines and penalties. That’s why it’s so important to get payroll right. If you’re one of the lucky few (a franchise with a built-in payroll provider as part of the franchise agreement), great! But if not, you may be left with tedious HR tasks that take your focus away from your customers. Before we dive deeper, let’s identify the players in the game. “Employer” “Franchisor” and “Franchisee” Who’s Who? Owning a franchise is similar in many ways to running an independent small business, such as a restaurant or dry cleaners. One of the...