How a Paycard Works

A payroll card, or paycard, can be a very useful device for businessesand is becoming increasingly popular as an employee payment option. Pay cards are essentially debit cards onto which payment is loaded by the employer. This is done via a direct deposit transaction, except the payment is made onto the card's account rather than an employee's bank account. There are a number of different reasons a given business might want to use them rather than more traditional forms of payment, such as checks or direct deposit to a bank account. Here, we'll go over how they work, why they are used, and how they can benefit employers.

Because paycards are basically freestanding checking accounts that get direct deposits from an employer, they can be used in lieu of direct deposits to banks or traditional checks. This is often desirable for employees that do not have access to a bank, whether it is due to poor checking history or simply being very inconvenient. They are also a good fit for employees without bank accounts, because instead of having to pay to cash a check, they can access the full amount of their payments.

Companies can save money by using paycards because they do not have to purchase checks, nor do they have to spend money on printing or distribution. There is no need to worry about check fraud, which can happen when checks are lost or stolen. Paycards can be used in any way that a debit card can, and so employees can use them to withdraw money from ATMs and can also use them anywhere that accepts debit cards as a form of payment. Some paycards will incur a fee if they are used at an ATM more than once per pay period, although others allow employees to use them freely. These fees vary by state, so employers should check state regulations to determine if their employees will be charged multiple withdrawal fees.

Paycards also allow employers some degree of flexibility as to how the account is set up. Some have one single account for all employees in which funds are kept, while others have an individual account for each employee. Paycard accounts are typically FDIC insured, although some are not. Employers should check with the card provider to determine this before enrolling in a paycard program. They are an excellent solution to employers who want to save money and consolidate their payment program into a single account or help provide their employees with an alternative to traditional check payment systems.