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What's a Payroll Card and Should You Use One?

Payroll CardPayroll Card
min read
August 21, 2023

Many business owners have switched from traditional checks to direct deposit payments. According to the American Payroll Association, 93% of people in the U.S. get paid by direct deposit. 

And that makes sense. 

Businesses get to avoid printing and mailing paper checks, and employees get their salaries instantly. It’s a win-win.

But what about employees who don’t have a bank account—or who can’t easily access one? You could go old school and send paper checks. Or you could use a payroll card.

What is a Payroll Card?

A payroll card (or pay card) is a prepaid bank card you provide to your employees to pay their salary. Instead of sending checks or direct deposits each pay period, you simply reload the payroll card with their net wages

The payroll card works similarly to a debit card for your employees, but it doesn’t require them to have a checking account. 

Hour payroll card

What are the Benefits of a Payroll Card?

After direct deposit and traditional checks, a payroll card is the next most common payment method for paying wages.

And it has certain advantages for you and your unbanked employees.

So what, exactly, are those advantages?

Employer Benefits

There are a number of benefits for employers when they choose pay cards over checks, including:

Employee Benefits

A prepaid card backed by a financial institution doesn’t only benefit employers. It can also be a better option for employees. 

Some of the benefits for employees include:

What are the Disadvantages of a Payroll Card?

We’ve seen many pros of using a reloadable card to pay employee salaries. But what about the cons? 

There are some potential disadvantages to consider before adopting a payroll card program, including:

Pay Card Regulations

If you plan to use pay cards, you should be aware of the federal and state regulations that apply.

So what are those regulations? Let’s dive in. 

Federal Payroll Card Regulations

Fair Labor Standards Act (FLSA) requires you to pay your employees minimum wage or higher.

But pay card usage fees may lower your employee’s wages below the minimum threshold. So monitor the fees to ensure your employees make more than the minimum wage. 

For instance, say you pay your employees the federal minimum wage of $7.25 per hour using a pay card with a monthly account maintenance fee of $5.25 for the card user. 

Technically, that will put their total income below minimum wage, so you’ll need to adjust your pay rate so that employees still receive $7.25 per hour after the monthly fee is deducted.

State Payroll Card Regulations

Some states have additional pay card regulations in place. 

Examples of such state rules include: 

That said, the rules vary for each state. You can check out state-specific regulations regarding payroll debit cards to see which regulations, if any, apply to you and your business. 

Finding the Best Payment Method for Your Business

Direct deposit is one of the easiest and most commonly used payment methods for employee wages. But if you have team members that don’t have bank accounts, you’ll need an alternative. 

Before you start printing paper checks, it’s worthwhile to consider using a reloadable card. Payroll cards can streamline your payroll operations and give employees easier access to their wages.

For more information on a card that works seamlessly with your payroll system, explore Hourly’s FDIC-insured Visa payroll card today.

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