Although a payroll card can be an excellent option for an employee who lacks a bank account, they'll have to pay some fees, like charges for ATM withdrawals, balance inquiries, fund transfers, monthly maintenance and account closures.
Some payroll card providers may charge for fund transfers or balance inquiries. Employees who use payroll cards may also be subject to monthly maintenance fees or have to pay ATM withdrawal fees. Research the payroll card fees charged by each provider before choosing one.
Many payroll cards charge fees: This is a significant disadvantage, as these fees reduce the amount of money available to the employee. You cannot use your payroll card as a debit card: This is false; payroll cards function much like debit cards.
Before you agree to receive your wages on a payroll card, make sure you understand those terms and fees. For example, some cards charge fees for out-of-network ATM withdrawals, receiving paper statements, or checking your account balance at an ATM. Some cards charge fees every time you make a purchase.
Authorized users may not see an impact unless they've personally guaranteed the card. Employees using a corporate card for a larger company are generally not at risk of credit impacts, as the card remains tied to the company's credit, not the individual's.
Disadvantages. Pre-paid debit cards do not help you build credit. Many pre-paid debit cards charge fees before you even start using them. There is usually a monthly fee and fees on common transactions such as ATM withdrawals, card replacement, direct deposit, and reloading the card.
Some employers opt to pay employees with a payroll card because it may be easier and less expensive than other forms of payment, while others want to accommodate unbanked or underbanked workers who cannot accept direct deposit.
Most prepaid payroll cards charge fees to use certain card features. Before you agree to receive your wages on a payroll card, read the disclosures to understand the fees and other terms. Some employers pay employees their wages or salary on payroll cards.
A payroll card is a "stored value debit card", which is "reloaded" every pay day or at other times through an ACH direct deposit transaction. It is not a credit card, and you may not spend or withdraw more than the amount available on the card. It does not extend credit to individuals, it works like a debit card.
Can my employer see what I purchase on a paycard? No, an employer can't see any information about how an employee uses a paycard.
Direct Deposit: This is a popular method where funds are electronically transferred directly to an employee's bank account. It's convenient and secure.
Payroll cards provide a secure alternative to issuing checks or cash. Cardholders enjoy the fraud protection benefits of Visa's zero liability program. If a payroll card is lost or stolen, the card balance can be frozen and a new card can be reissued.
Instead of receiving a paper check, employees can use paycards to obtain cash and pay monthly expenses up to the limit of their wages. Paycards function like debit cards when making purchases, paying bills, or withdrawing cash. Paycards allow the holder to use only the funds loaded on them.
However the card does not require that you provide your bank information to the state, or that you even have a bank account at all. Unlike a traditional credit card, the payroll card does not extend credit to individuals. It works like a debit card.
Downsides of payroll cards
Employees who do not have a bank account will be unable to make any payments until the freeze is relaxed. Further, if the card is lost/stolen, the employee will not have access to the funds until a new card is replaced.
In California, wages, with some exceptions, must be paid at least twice during each calendar month on the days designated in advance as regular paydays.
Payroll Tax Rates
The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, for a total of 2.9%. That means that combined FICA tax rates for 2025 and 2024 are 7.65% for employers and 7.65% for employees, bringing the total to 15.3%.
Payroll cards, like direct deposit, are a form of electronic payment and an alter- native to paper paychecks. Each payday, the employee's net wages are depos- ited directly into the payroll card account. The employee can then use the card anywhere a debit card is accepted to buy things, get cash and pay bills.
Final answer: A significant disadvantage of using a payroll card is that many payroll cards charge fees, which can add financial burdens. These fees may include maintenance and transaction fees, making them less advantageous than traditional banking options.
There are situations where direct deposit might not be the best form of receiving payment. Payroll cards make it possible for those who do not have a bank account or local banks near them to receive a paycheck. Printing out checks can be expensive, and some banks even charge extra for direct deposits.
Prepaid cards cannot increase your credit score.
As such, they cannot help you build or rebuild your credit history.
How do you get a paycard? An employee can get a paycard one of 3 ways — an employer can hand them an instant-issue card at their employment location, an employer can order a card to be shipped to an employee's address, or an employee can enroll for themselves and have it shipped to their address.
Fees: Unlike regular debit cards, which generally don't charge fees unless you overdraw them or don't maintain a minimum balance, prepaid ones may dock you per transaction. This means you'll lose a little money every time you use or reload these cards. If you're using them often, this adds up.