Payroll Debit Cards

The days of paper checks are soon fading, especially when it comes to the way employers pay their employees.  Many employers are now paying employees using what is known as a payroll debit card.  The card, a perfect combination of a payroll check and a debit card, lowers check printing costs for employers and gives employees fast easy access to their paychecks each period.

The payroll debit card has a slight twist on the traditional debit card – the cardholder does not have a checking account linked to the payroll debit card.  Instead, the employer holds the payroll account and the employee draws from that account each time the payroll debit card is used.

A good option for small businesses and businesses with young employees, the payroll debit card system offers a solution for those employees that are too young to have their own checking account.  Young employees, unable to take advantage of a direct deposit payroll system, have access to their paychecks, without extra check-cashing fees.

Payroll debit cards can be used in the same way as regular bank plastic.  Cardholders can use the card to withdraw all or part of their money from an ATM using their personal identification number, or PIN.  Alternatively, the payroll debit card can be used to make purchases and get cash back.

In most cases, a central, third-party vendor handles the transactions for the payroll debit card.  This vendor tracks both debits and credits for the card, depositing money and deducting withdrawals and purchases from the account.  These vendors also handles the paperwork involved with each paycard sending out paystubs and tax forms at the appropriate time.  Cardholders are able to check their balances through the vendor as well.

The cards aren’t a viable solution for every business, especially those that already have a trusted direct deposit system.  Some states’ laws keep employers from issuing paycards because employees are required to have the ability to access the total amount of their pay without incurring any fees.  For an employer to circumvent this law, it would have to take the brunt ATM fees charged for withdrawals.  Doing so would decrease the cost savings received from moving to this paperless system.

Businesses that have young or immigrant employees, or both, are most likely to benefit from the use of payroll debit cards.  The employer saves money on the cost of printing checks and the employee has cheaper, easier access to his or her pay.

Also see: Payday Loans, Secured Prepaid Cards