Using Paycards for Wages
As an employer, you have several ways to issue payroll to your employees: a paper check, direct deposit, or a paycard. While the first two methods are more commonly known, payroll cards have gained popularity in the last few years. Payroll cards are reloadable, prepaid cards that employers can electronically deposit an employee’s salary onto each payday. A 2017 study by Aite Group found that there had been $42 billion in gross dollar volume loaded onto close to 6 million active paycards that year. They project that by 2022 there will be over 8 million active paycards with a gross dollar volume of $60 billion.
There are advantages for both the employee and employer when they choose to use paycards for wages. For the employer:
It can reduce payroll costs and increase efficiency if you are still printing paper checks for employees that may not have direct deposit available to them.
There are no stop payment fees if an employee loses their paper check or has it stolen.
It lessens your exposure to paycheck fraud.
For the employee:
Employees who do not have a traditional banking account usually rely on check cashing stores and their associated fees. Paycards give them quick access to their pay, and while there may be fees associated with certain uses of paycards, they are usually less than check cashing stores.
Employees can quickly access their money from an ATM and avoid waiting on lines to cash a paper check.
There is also the advantage of using the paycard as a debit card, which enables them to make store purchases and pay bills online.
It is important to know that employers cannot legally require their employees to receive their wages via paycard. According to the FLSA, employees should be able to choose how they receive their pay. The Consumer Financial Protection Bureau has stated their intention to stop any violations. In addition, each state may have their own rules regarding the use of paycards for wages.
Pennsylvania: The use of paycards is permissible if the employer does not mandate their use and the employee must consent to accepting the paycard in writing. The employee must also be allowed one free withdrawal of all wages earned per pay period and be able to check their balance electronically or by phone. There can be no fees associated with the paycard.
New Jersey: The employee must agree to accept the paycard as wage payment and they must be able to choose a new method at any time. They also need to be able to make one free withdrawal at least once per pay period.
New York: There can be no fees associated with withdrawals from their paycard. Employers cannot require nonexempt employees to use paycards. Employees need to have a written disclosure regarding any additional fees associated with the use of the paycard.
Paycards offer another alternative for wage payment that could work for both your business and select employees. However, it is important to weigh the pros and cons as well as state and federal regulations before determining if this is a payroll option you want to start offering.