Payroll Cards (Paycards)

A payroll card is a reloadable prepaid card issued to an employee by a financial institution on behalf of his or her employer for the receipt of wages and other compensation. Each pay period, the employee’s net wages are credited to his or her payroll card account typically through the employer’s normal ACH process. The employee can then use the card to withdraw cash from an ATM or bank teller, make purchases, and/or pay bills.

Payroll cards are intended to complement an employer’s direct deposit program so that all employees – even those without bank accounts or with limited access to traditional financial services – are able to participate in electronic wage payment. Indeed, federal banking law prohibits employers from requiring their employees to receive their wages on a payroll card but instead requires that employees be offered at least one other payment option – such as direct deposit. State law determines whether a paper paycheck option must also be provided.

State wage and hour laws also regulate the use of payroll cards. Common issues addressed by these state law provisions include full and free access to wages, employee consent, fees, card cannot be linked to credit, disclosure of terms and conditions and access to account information.

For privacy protection reasons, employers never have access to their employees’ transaction data. As with direct deposit, employers receive confirmation when net pay is deposited into their employees’ accounts. They do not, however, have access to information about employees’ withdrawals, purchases or other transactions.

Benefits of Payroll Cards

Payroll cards bring the benefits of traditional direct deposit to segments of the employee population that might not otherwise participate in electronic wage payment. Specifically, payroll cards provide employees without bank accounts or with limited access to mainstream financial services with increased security and convenience, while guaranteeing employees a means of accessing their full net wages each pay period without cost. Without payroll cards, these underserved employees often rely on expensive check cashing services to access their wages and then incur additional costs purchasing money orders to pay their bills. Once the check is tendered, the employee is left holding their net pay in cash – which may be lost or render the employee a target for theft.

Payroll cards also facilitate the reliable delivery of wages and provide underserved workers with a pathway into the financial mainstream. Low-income workers report that payroll cards help them prioritize their spending, enable them to shop online, and help them to save money.

Employers also benefit from incorporating payroll cards into their electronic wage payment programs. Direct deposit and payroll cards allow employers to streamline their payroll procedures by reducing, and possibly eliminating, the time spent processing and distributing paper paychecks. Electronic wage payment allows employers to deliver payroll in a timely manner even when employees are away from the workplace or when severe weather and natural disasters impede the delivery of paper paychecks.

Employers often realize significant cost savings when they switch to electronic wage payment, which is also environmentally friendly and helps employers decrease their carbon footprint.

Types of Payroll Cards

Today, almost all payroll cards are branded – meaning that they carry the logo of a major payment network such as MasterCard, Visa, or Discover. Branded payroll cards are sometimes referred to as signature cards because they can be used to purchase goods and services by signing for the purchase, the same way an employee would sign for a credit purchase. Branded cards can also be used to make PIN-based transactions.

Payroll cards that do not carry the logo of a major payment brand are referred to as “unbranded” or “PIN Only” payroll cards. These cards require entry of a PIN to authenticate each transaction and can be used at ATMs or merchants served by PIN-networks such as Star, Pulse, NYCE, Cirrus, Maestro, Interlink or Plus. All payroll cards today should be branded as any unbranded cards will not be able to meet the current regulatory requirements and meet the consumer demands.

Both branded and unbranded payroll cards can be personalized or “instant issue.” Personalized cards have the employee’s name embossed on them and are normally created after the employee elects the payroll card option. Depending on the method of delivery or shipment, it can take three or more days for an employee to receive a personalized card.

Instant issue payroll cards are not embossed with the employee’s name but can be distributed to employees at the time they make their payment selections. Typically, this would be at the time of hire. Cardholders may begin using the card as soon as their first payroll is deposited. Depending on the payroll card program, a personalized card may later be issued to the employee.