Do you pay your employees by payroll card--a prepaid card similar to a gift card with their payment loaded on it? If you never have, you probably will, or at least consider it. Especially if your business employs part-time or hourly workers. Payroll cards are gaining popularity--and attracting controversy--across the country.
Before you sign on with a payroll card provider, here are some things to consider:
1. Payroll cards can save you a lot of money.
This is why the cards are increasingly popular with employers, especially those with a number of employees who don't want or can't use direct deposit. The cost of issuing a paper paycheck might be $2 to $3, including labor, printing cost, etc. The cost of issuing a payment using a payroll card might be as little as 35 cents.
2. They're probably the best option for employees without bank accounts.
About 10 million American households don't have any bank accounts at all. Some are excluded by banking rules that deny bank accounts to people who've frequently overdrawn accounts in the past. Others are leery of the minimum-balance fees some banks charge, or distrust banks in general. According to a recent study by the Center for Generational Kinetics and Global Cash Cards, about 5 million Millennials don't have bank accounts and a high percentage don't want them because of their distrust of banks. For employees who fall into this category, payroll cards may be a great idea because they can offer savings over the high fees payday check-cashing places charge.
3. But they come with a lot of fees of their own.
Payroll cards may save you money, but--even though they're a better deal than check-cashing services--they come with a lot of extra fees for your employees. There can be fees for talking to a teller, checking a balance, depositing the money in a bank account, paying a bill online, withdrawing money from an ATM (on top of what the ATM owner charges), or even swiping the card to make a purchase. There might even be an "inactivity fee" for doing nothing at all.
These extra fees are the source of the controversy. In particular, Darden Restaurants, which operates Olive Garden, has come under fire for paying its employees via payment cards--in effect passing on payroll costs to employees in the form of high fees, according to some critics.
4. Payroll cards should be an option, not an obligation.
Laws around payroll cards are complex, but it's clearly against the law to offer a payroll card of your choosing as the only payment option for your employees. At a minimum, you should also offer direct deposit. And you should make sure employees understand their choices. Some large employers have come under fire because employees were not made aware of their rights and thought they could not refuse to be paid by payroll card.
5. Keep an eye on evolving payroll card legislation.
As payroll cards become more popular--and draw more fire--state lawmakers across the country are taking a closer look at them. Many states have laws requiring that employees have some way to access their entire paycheck for free. Even if your state isn't one of them, make sure employees have some way of drawing their entire paycheck without fees if only because it's the right thing to do.
6. Choose a card with fewer fees and make sure employees know about any fees they might encounter.
In particular, card providers may brag that their cards are accepted with no fee at tens of thousands of ATMs. Find out whether any of those ATMs are actually in your area, and where.
See our list of Best Payroll Services