A paycard is a reloadable debit card that is a viable payment alternative for business owners and their employees. When it comes to paycards, the trend is accelerating.

It is the employer’s responsibility to ensure that each employee gets paid keeping in-line with state law requirements. Given the current global situation, you may have an employee in a distant location, another who travels mostly, and another who doesn’t have a bank account, which means direct deposit is not an option. How would you work around this?

Paycards are being used by more employers to ensure that wages are accessible to all employees, they are paid on time, wages can be accessed, and to decrease payroll-related costs.

How it works

The paycard looks similar to a debit card that employees can use in stores that accept credit cards and to redeem cash at an ATM. The employer adds each employee’s pay onto the plastic card.

Below are some benefits of using Paycards:

  • Decreasing or removing fees employees pay to cash paychecks.
  • Saving time by not having to wait in line to cash your checks.
  • Assisting with online purchases for employees who don’t have a credit card or bank account.
  • Removing anxiety employees have carrying around larger amounts of cash.
  • Providing each employee the opportunity with not having to cash checks using companies that charge a percentage of the check amount.

Unless each employee’s account is set up by the company at the employer’s bank, you risk losing full protection under the Electronic Funds Transfer Act (EFTA).

If a verified bank error or theft has taken place, the EFTA provides debit card holders the protection in which funds will be returned to their accounts within 10 days.

It is recommended by the EFTA to occasionally give account statements to employers who oversee account activity, which will assist in resolving errors, and unauthorized transactions on stolen or lost cards.

By having the card issuer set up a separate account for each employee, or simply by contracting with the issuer to offer EFTA-like protections, you’re then providing EFTA protection for accounts that do not come under the law.

There are many factors that determine how much your client or company can save with paycards, which includes the number of employees you have.

In advance of setting up a paycard system:

  • Request the same protection banks offer for debit cards.
  • Eliminate hidden fees—such as for loading employee’s paycheck onto cards, each minute of customer service, replacing lost cards, and surpassing a certain number of transactions, etc.
  • Employers should consider paying the low monthly fee charged by the issuer and negotiate to remove monthly fees for employees (no-fee access to pay is required by some states).
  • Assess options offered by the issuer, such as moving money into another account or paying bills directly.
  • Have privacy protection —i.e., the issuer must promise not to sell or share information.
  • Paying monthly ATM cashing and card-issuer fees.
  • Ensuring that the card issuer is financially stable is important, as employees could lose the funds on their cards if a card issuer goes out of business.
  • Providing the choice to receive paper checks.
  • Assess the overdraft policy— overdraft fees charged by some issuers can be $29 (some paycards permit overdrafts knowing they can be recouped the next pay period).
  • Having a card that offers information in English and other languages.

Note of Caution: Don’t leave it to your employees to pay monthly fees. If you have hourly employees making close to minimum wage or minimum wage, fees will lower their pay below state or federal minimum wage, causing your company to be in violation of the law. Consult a labor lawyer if you are unsure about this.