When it comes to the ways workers are getting paid, payroll cards and direct payments are two of the most prevalent methods. The inception of payroll cards is the most recent innovation in how employees are getting their earnings.
The popularity of payroll cards is on the rise as the world has moved towards a cashless economy and traditional financial products are on the decline. As more and more businesses are looking for ways to go paperless, offering payroll cards is becoming the default option.
The use of payroll cards has grown so much that in 2017 there were approximately 5.9 million active pay cards with $42 billion loaded onto them.
Payroll card basics
A payroll card is a type of prepaid debit card designed as an electronic means to deposit employees’ net wages.
Instead of issuing a paper check or making a direct deposit, the employer electronically loads the funds onto an employee’s card every pay period. The employee can then use the card just like any other bank account or general-purpose prepaid card.
This reloadable prepaid card is similar to a direct deposit as you can choose to save, withdraw or spend the funds from the card.
Withdrawing cash is possible from ATMs and certain banks.
The payroll card system has numerous benefits for both employer and employee. Let’s explore the most important ones.
More convenient payment method
Employer: Issuing a payment using a payroll card is easier for the employer than generating paper checks.
Employee: There is no need for workers to physically pick up their compensation or to wait for the mail with a check to arrive. Electronic wages transfer onto a card allows immediate access to these funds.
Introducing personalized cards
Employer: Handy personalized payroll cards provide a great solution for the payout of a specific job. They can also help your brand inspire greater employee loyalty as they are likely to feel like a part of your company.
They also offer one valuable feature: discretion.
Employee: The option of quietly loading money onto an employee’s card can be very useful. If a staff member has earned a bonus, this can help avoid resentment from other workers.
Employer: Payroll cards are cheaper to administer. Processing and distributing paper paychecks comes at a certain cost. Also, the cost of paper and printing is not to be underestimated.
Issuing a payment via pay card costs as little as 35 cents in contrast to $2-3 for issuing a paper paycheck.
Employee: Payroll cards allow workers to access their earnings for free. Depending on the payroll card issuer, particular pay card and the state, accessing the salary for free is possible at least once every pay period.
Some cards offer multiple free in-network ATM withdrawals.
No check-cashing fees are involved. Check-cashing fees can be significant for unbanked workers. If an unbanked employee makes $20,000 per year, even moderate fees can get up to $400 a year.
Avoiding overdrafts is another plus. What you see is what you get. You can’t spend a cent more than whatever amount you have on the card. This means no penalties for overdrafts and no costly overdraft service fees.
More flexible payment system
Employer: Switching to another financial provider is not necessary to set up this payment method. The employer can combine direct deposit and payroll cards from their current bank.
Employee: Workers can enroll and order cards to get quick access to their wages even if they don’t qualify for a bank account or just don’t want one.
Payroll cards are especially important for the millions of unbanked workers. More than 8 million U.S. households don’t have any bank accounts, according to a 2017 survey.
People struggling with low incomes have difficulties meeting a minimum deposit required for a checking account. Also, a significant number of people express their distrust in banks.
This system allows more flexibility meaning more payment options are available. Besides the traditional weekly or two-week cycle, a payroll advance or getting your wage every day is also possible.
This is especially beneficial for those workers living from paycheck to paycheck.
Employer: Payroll cards mean fewer people involved in the process and less paperwork since it is a more automated procedure. This is especially important for small business owners as it also means more time for them to focus on growing the business.
Reissuing a stolen or lost paper paycheck, monitoring if the checks are cashed and other annoying paycheck-related activities are things of the past with this innovative system.
Employee: Reducing wait times is invaluable. Depositing a check and withdrawing money takes time, which is saved with payroll cards.
Also, wages, benefits, and bonuses can be transferred at an increased speed.
It is possible to track every transaction and take efficient control of your funds.
Payment technologies have evolved into increasingly electronic forms. Payroll cards are valued for their convenience, faster payment and safety. Why not take advantage of these benefits?