Payroll card cons
Payroll cards benefit employees because they get access to their funds without a bank account and can easily be replaced if lost or stolen. However, payroll cards include fees, may get lost and don't accumulate interest.
Like other prepaid cards, you're not typically charged a monthly fee but you may incur other fees, such as for ATM withdrawals or if the card isn't used for a certain period of time. Many state laws require that you're able to access or withdraw your money for free, so check your state's laws.
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.
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.
Disadvantages of a payroll card
If a card is stolen, the employer has to get these funds back from their payroll company and you may have to wait several days to access the recovered funds. Some places do not accept payroll cards as forms of payment.
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.
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.
Unlike a traditional credit card, the payroll card does not extend credit to individuals. It works like a debit card.
A general rule of thumb is that you can expect payroll costs to be about 1.25 to 1.4 times an employee's base pay once you add up the above expenses. So, if an employee is paid $30 per hour, the total payroll cost would be between $37.50 and $42 per hour.
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.
Generally, employees don't incur costs by using a payroll card. By law, employees must be able to access their wages in full without any fees. This can be done by presenting the card to a bank teller, using an ATM associated with the card issuer, paying bills by telephone, or using the card for point-of-sale purchases.
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.
Typically, you cannot load money onto a payroll card yourself—they're not intended for use as a savings account. Some programs allow non-payroll cash reloads, but these will be subject to additional fees.
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%.
Direct Deposit: This is a popular method where funds are electronically transferred directly to an employee's bank account. It's convenient and secure.
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.
A payroll card is a type of prepaid debit card for your employees. On payday, your organization would deposit an employee's wages on their card. The employee can then use the card to make cash withdrawals from ATMs and to make purchases, just like a debit card from a bank account.
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.
Payroll Cards & Advanced Pay
Employers can allow employees to access up to two weeks of advanced pay with a payroll card. By nature, employees also can't overdraft a payroll card as anything over their current balance will automatically be deducted from their future pay.
Putting your personal purchases on your business credit card technically isn't illegal. However, making personal purchases on a business credit card likely violates the terms and conditions of your card agreement, which can come with serious consequences.