What Is a Paycard and How Does It Work?

Employees can cash out wages from paycards at a bank, ATM, or other point-of-service location offering cash back (e.g., grocery stores). Employees may also be able to pay bills over the phone using their paycard number or authorize electronic bill pay to specified companies, such as a property leasing or mobile phone company.

Employees can use paycards at any merchant that accepts debit cards. This includes grocery stores, gas stations, and retail shops.

The funds an employee earns appear on a paycard when funds are loaded into the payroll card account.

A payroll card is like an employee's debit card, with one key difference. Payroll cards are not linked to an employee bank account but operate with a separate account, usually offered by a third-party provider. This is the crucial distinction between a paycard and an employee debit card.

The primary alternatives to paycards remain paper checks and direct deposits into an employee's bank account. It may be helpful for employers to offer all options — paper checks, direct deposit, and paycards — and to explain them to employees so that they can make informed decisions about their pay options.

No. Federal law requires employers to offer alternative payment methods and prohibits employers from providing only paycards to unbanked employees. Some states require written authorization from the employee to pay wages via a payroll card.

Check on any state laws mandating the delivery of pay stubs (wage statements). If employers use paycards or direct deposit, they may still be required by state law to provide employees with a statement showing their wages, deductions, and other required information.

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.

However, employees may encounter fees for electronic fund transfers or for using ATMs not in the issuer's network. Fees may also be charged for replacement cards, balance inquiries, or other reasons.

Paycards function like debit cards, allowing holders to use only loaded funds. Employers can use a payroll card program that permits overdrafts to employees. However, this usually is not a good option due to overdraft fees.

A replacement card can be issued if a paycard is lost or stolen. In such a case, the employee should notify the employer, and then the employer should immediately inform the provider. In most cases, the employee won't be penalized for unauthorized card use if the problem is reported to the issuer.

Employees can use debit cards tied to their own bank accounts in the same way as paycards (and often with fewer fees). Many employers find direct deposit the most efficient and least costly payment method. However, paycards can be used for banked employees to set aside a certain portion of pay as a budgeting tool. In fact, paycards can be issued to family members (e.g., an employee's college-age child) to shift funds efficiently.

Paycards can be a money saver for employers. Because payroll can be processed by having the bank reload pay cards with wages for the current pay period, the employer can avoid expenses associated with issuing paper checks, including costs for re-issuing lost checks and postage for mailing. The savings may not be dramatic, but they can add up over time.

Employers can manage paycards online via computer or phone 24/7 through online portals and applications. The funding is authorized electronically so that employee payments can be made despite extenuating circumstances, such as storms, natural disasters, or other emergencies.

Similarly, employees can manage their paycards online by viewing account balances, reviewing transactions, and authorizing online bill pay (e.g., to a utility).

Employers may be able to have unused paycards ("blanks") on hand and issue one to a new employee upon hiring. This can help an unbanked employee to receive their wages on time.

Employers can also use paycards to pay final wages immediately.

Paycards are like any other prepaid card. It has no impact on an employee's credit score.

It's possible to add funds to these paycards through direct deposit. Some retail locations permit the loading of additional funds as well.