Payroll Card: Regulations & How It Works

A payroll card is a form of prepaid debit or credit card which can be loaded with funds from an employer and then accessed by employees to purchase goods. There has been increased interest in the use of payroll cards as they are seen as one solution to address issues around issuing, reloading and monitoring employee expenses.

The “payroll card holders benefit from increased safety” is a statement that can be found in the article. This statement shows how the payroll card has become more popular and beneficial for workers.

Payroll cards (also known as pay cards) are prepaid debit cards used by firms to pay workers who do not have bank accounts. They’re comparable to direct deposits in that money is transmitted electronically and setup is often free, although being controlled by state law. Pay cards may be obtained via specific suppliers (such as FlexWage or Visa), banks, or payroll firms.

Instead of or in addition to direct deposit or a paper check, you may pay your workers using a payroll card. Pay cards have a few benefits, including the fact that workers don’t have to go to the bank to get their money. Whether you’re already using payroll software to manage your payroll, it’s a good idea to see if they have them. Customers may get pay cards for free from certain providers, while others will charge fees for setup, ATM transactions, and even inactivity.

Check out our payroll card buyers guide for additional information on payroll card providers and what they have to offer. We looked at a lot of different credit card companies and narrowed it down to the top seven.

Payroll Cards and How They Work

Employee paychecks are deposited to a prepaid debit card rather than directly to an employee’s bank account, as is the case with direct deposits. Funds are instantly accessible after the money transfers, and the employee may use the card to withdraw cash from an ATM or make online/in-store purchases. Employees should be able to access their assets instantly and without charge, according to federal legislation.

You’ll need to choose a provider for a pay card program, which might be your current payroll agency or a bank for convenience. Typically, you’ll have to go through an enrollment procedure and sign up before you can get started. Setup might take anything from a few days to a few weeks, and you should be provided with training materials to enable workers who want to participate understand the process. After the setup is complete, the cards are sent.

Pay cards are available from a variety of companies, and many payroll software programs allow you to set up direct electronic payments to third-party pay card providers in the same manner that you would set up direct deposit.

You may be able to set up pay cards through your current payroll service provider, bank, credit card company, or even a professional employer group, in addition to dealing with a pay card firm (PEO). Some of these companies go above and beyond just giving credit cards to your company.

Debit Cards vs. Payroll Cards

Payroll cards are similar to debit cards, however they are not interchangeable. Debit cards are connected to monies placed into a bank account; there can be no debit card without a bank account. Payroll cards aren’t linked to bank accounts and come with their own account with the service provider. Employers pre-load money into the account, and it’s almost hard to spend more than the pre-loaded amount, reducing the risk of overdraft costs.

Payroll Card Restrictions at the Federal Level

Pay cards are regulated by federal law, which means you must follow the rules regardless of where you live. The goal is to safeguard workers from being treated unjustly when it comes to obtaining salaries. The key to complying is to be transparent, to make sure that all workers understand what a payroll card is, and to remember that participation in a pay card system is always voluntary.

When launching a pay card program, your company must satisfy the following requirements:

• Ensure that workers are paid minimum pay: Overtime, minimum wage, and other labor rules are governed by the Federal Labor Standards Act (FLSA). Be mindful of any necessary expenses your workers must pay to withdraw their income; if the deductions cause their earnings to fall below the minimum wage, you may be held accountable.
• Provide an alternative: Because you can’t compel workers to join in the business pay card scheme, you’ll need to provide an alternative. Direct deposit or paper check are acceptable alternatives under federal law, but you should verify your state law for any extra laws.
• You must provide workers with a disclosure that details any costs that may be charged as well as the different forms of electronic transfers they may make. You should also make all of the pay card program’s specifics available to workers and make it clear that participation is voluntary.
• Account history: Make sure the provider you pick offers periodic transaction statements or an electronic transaction history for the last 60 days, as well as the ability to check account history over the phone and request a printed history of account transactions for the previous 60 days.

Payroll Card Laws by State

The restrictions for firms that accept payments through credit cards vary by state. You must provide an extra payment method, although each state determines whether or not it may be electronic (direct deposit).

Employers in New York and California, for example, may provide a pay card alternative in addition to a paper check, as seen in gray on the map below. In some states, using a paperless system is not the only choice. However, states shown in blue, such as Texas, allow for paperless payment methods such as direct deposit and pay card alone. You are not required to provide a paper check alternative.

Furthermore, most states have pay card restrictions, such as mandating free ATM withdrawals or guaranteeing that the employee receives their whole salary without having to pay service fees.

Regulations governing the use of a pay card as an electronic payment method vary by state. Rapid data source! PayCard

Employers are not allowed to get any type of commission or advantage from their workers’ usage of pay cards in several states. As a result, we strongly advise you to choose a pay card supplier that is knowledgeable with employee payment rules in all of the states where your workers operate.

Benefits of Providing Payroll Cards

Offering a pay card option may save your company money, particularly if you pay bank fees to transfer salaries through direct deposit. Employees also get access to more convenient and quicker payment methods.

Here are the some of the Benefits of Providing Payroll Cards:

Employees who do not have access to a bank account will find it easier to use a pay card.

The most typical reason for a company to provide a pay card option is that it is more convenient for employees who do not have access to a bank account. The Federal Deposit Insurance Corporation (FDIC) estimates that 7% of families do not have a bank account, while almost 20% of people do not utilize one. These people are referred to as unbanked or underbanked by the FDIC.

Paying using a credit card saves time.

In the same way that a company sends payroll payments to an employee’s account on payday, a pay card works similarly to a direct deposit. Instead of being deposited into an employee’s bank or credit union account, the earnings are deposited onto the employee’s payroll debit card.

Paper checks may be revoked weeks, if not months, after they have been issued. So, in addition to saving time on paperwork, you’ll save time balancing your accounts and worrying about escheatment, which is the process through which personal property, such as bank accounts, is abandoned (typically due to death) and handed to the state.

Paying using a credit card saves money.

A pay card saves you money over traditional paper checks, whether it’s in terms of the time it takes to print and distribute them or the cost of paper and shipping. Offering a pay card option to workers is normally free, similar to offering direct deposit, however certain payroll companies may charge a fee for administering electronic payment choices.

Assume you process payroll for 25 workers every other week. At 50 cents per regular first-class stamp at the post office, that’s 26 payrolls every year for 25 workers. Just the postage would cost $325 a year; your administrative time, paper, and envelopes would be extra. It also costs more if checks are misplaced, canceled, or reissued. With pay cards, the money is available as soon as payroll is completed.

Paying using a credit card might help you avoid being a victim of identity theft.

Check fraud happens when someone obtains illegal access to money by stealing your company information, such as your checking account’s routing number. It may also happen if someone makes a change to the check, such as altering the amount or the name of the recipient.

A pay card, on the other hand, is less hazardous than a check if it is lost or stolen. To receive money, the pay card, like any prepaid debit card, needs the use of a personal identification number (PIN), which lowers the risk of illegal usage. It is possible to replace the pay card itself.

The Drawbacks of Payroll Cards

Paying using a credit card has various disadvantages. Employers’ use of pay cards is governed by federal and state legislation, and failure to comply might result in a lawsuit. Employees may also rack up large costs if they aren’t diligent, for as by withdrawing money from non-participating institutions.

Here are some of the The Drawbacks of Payroll Cards:

Fees for using a credit card

Be aware of any costs your workers may incur as a result of using certain payroll cards. Some ATMs impose exorbitant service fees of up to $5 each withdrawal. Employees may be charged to check accounts or withdraw monies by banks.

Regulations Regarding Payment Cards

Payroll cards are governed by federal and state rules, so you’ll need to educate yourself before offering them to your workers.

Recently in the news:

In 2017, several McDonald’s franchise owners in Pennsylvania were ordered to pay almost $3 million total to hourly employees who sued over unfair Fees for using a credit card; some were charged for using ATMs and making online payments.

To protect yourself, you’ll need to devote time to studying and keeping up with new credit card legislation.

Due to fraud, there has been a temporary loss of access to funds.

Payroll cards, unlike direct deposit, may be misplaced or stolen. It just takes an employee dropping the card at a shop or forgetting to recover it after presenting it to a cashier for payment to compromise the card. To protect against fraudulent charges, most suppliers have dispute processes in place. Reporting fraud, on the other hand, may result in the card being cancelled, and the employee may be without cash for several days or longer.

Educate your employees on the use of credit cards.

If you provide your workers the choice of using a pay card instead of direct deposit or a paper check, make sure they understand how to avoid incurring service fees. Include things like:

• How to get cash and balance information without paying fees by using in-network ATMs, bank tellers, or point-of-sale (POS) systems.
• How to keep their PIN safe by remembering it rather than writing it down or keeping it near their credit card.
• Who to call if their card is lost or stolen and they need a replacement.

Conclusion

While providing pay cards to workers without bank accounts is a terrific alternative, it should not be used in lieu of other payment methods such as direct deposit. You may select from a variety of providers, including payroll services, that can help you with both. Many providers provide free enrollment; just be sure to inform your staff that it is a choice.

The “best payroll cards for employees” is a type of payment card that is used for the purpose of paying wages. It provides an easy way to pay employees and helps avoid costly mistakes. The article will go over how this type of card works, regulations and other information.

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