DEFINITION of 'Payroll Card'

A prepaid card onto which an employer loads an employee’s wages or salary each payday. Payroll cards are an alternative to direct deposit or paper checks. These cards are issued by major payment processors, such as Visa, allowing workers to use them anywhere credit cards are accepted. Users access their money from an ATM or cash back purchase in the same manner as with a traditional debit or credit card. Payroll cards are also reloadable, so a worker need not receive a new card each pay period.

BREAKING DOWN 'Payroll Card'

Payroll cards are offered by banks and employers as a service for low-income employees who do not have bank accounts. Payroll cards have advantages for both employers and employees. Employers save money by not having to issue paper checks. Employees who don’t have bank accounts get their money instantly, just like employees who use direct deposit, and they don’t have to pay check-cashing fees or worry about losing large sums of cash. Employees can use payroll cards like credit cards to pay bills and shop online, and since payroll cards are reloadable, employees don’t have to set up a new payment method every payday.

Employees can also use their payroll cards to get cash at an ATM, just like employees with checking accounts and debit cards can. Some payroll cards can also be used to get cash back at the point of sale at certain grocery stores and convenience stores. Employees don’t need to have a good credit score or any credit history to receive and use a payroll card, because it isn’t a credit card. It’s impossible to go into debt with the card, because there’s no credit available and no overdraft allowed. Payroll cards can be replaced if they are lost or stolen, without loss of funds. Employees can also add funds to their own payroll cards; they aren’t limited to only having payroll funds added by their employer.

A downside of these cards for employees is that they charge fees for certain transactions. Fees vary by issuer, but examples include a $5.95 monthly account maintenance fee for any month when the card is not used, a $9.95 fee to replace a lost or stolen card, a $0.50 ATM balance inquiry fee and a $2.50 out-of-network ATM fee. Traditional checking account users also incur fees for certain activities, however. It’s important for payroll card holders to understand that their cards may have fees and to learn what actions will trigger those fees so they can avoid them. If the fees are too high, the employee can opt to be paid by another method.

 

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