Employee separations can be costly to businesses, especially when they are voluntary. High turnover can also lead to a loss in productivity, which makes it essential for organizations to reduce employee separations.
One way to reduce employee turnover is by offering payroll cards, which are reloadable prepaid debit cards that can be used to receive direct deposits. These cards allow employees to access their money instantly without paying check-cashing fees.
Reduced Overdraft Fees
Payroll cards (or payroll prepaid debit cards) are popular among employers to distribute employee wages, especially to those without bank accounts. They work similarly to direct deposit, but instead of sending the money electronically to an employee’s bank account, the employer gives each worker a card that can be used to shop, make automatic bill payments, and get cash at a convenience store or ATM. Depending on the program, employees may even be able to use their cards to buy gas or food at certain restaurants and grocery stores.
Unlike traditional debit or credit cards, payroll cards are typically designed to prevent overdrafts by only allowing an employee to spend the amount loaded onto the card by their employer. This helps individuals manage their finances responsibly and avoid debt. Generally, these types of cards also have transparent fee structures that ensure employees understand the costs of the service and how to minimize them.
Employers should carefully weigh the benefits and disadvantages of a payroll card program. When choosing a provider, finding one regulated by federal and state law is essential to ensure they provide compliant services in all states. Additionally, employers should consider whether they want to offer monetary incentives to encourage participation in the program.
Remembering that payroll card programs are not a substitute for paying overtime and minimum wage workers is also essential. Employees not paid their total hourly rate could file a claim for breach of contract with the employer under state laws if they incur fees that reduce the hourly wages they “earned.”
Convenient Payment Options
Payroll cards allow employees to access their paychecks without the hassle of going to a bank or money exchange center. They also eliminate the potential for lost or stolen checks and help employers reduce costs associated with paper checks. They can even be used to incentivize employees through reward programs.
Employees can use their payroll card to withdraw funds at an ATM or make online or in-store purchases. Many states have laws that dictate how much an employee’s wages can be drawn on each payday and any fees that must be paid. These rules are designed to ensure workers receive at least minimum wage. Employees must be aware of any applicable fees which can significantly impact their earnings.
While payroll cards can be convenient for any worker, they are handy for unbanked or underbanked employees. These individuals often must pay fees to cash their paper checks and are less likely to have access to a checking account. In addition, younger workers — including millennials and Gen Z — are more likely to be unbanked or underbanked.
Payroll cards work similarly to direct deposits but transfer the funds to a prepaid debit card instead of into an employee’s banking account. Unlike cash, payroll cards are protected by the Federal Deposit Insurance Corporation, so they can be used anywhere debit cards are accepted.
Reduced Paper Waste
Using payroll cards eliminates the need for paper paychecks, making it easier for employees to manage their finances. They can also use their payment card to access other funds such as severance, overtime, just-in-time allotments, and employee discounts. Payroll cards also allow companies to streamline the process of disbursing wages, reducing the chance of errors or lost checks.
Aside from the apparent benefits to workers, payroll cards offer employers a cost-effective alternative. By reloading their payroll onto a pay card each week, companies can save on processing a paper check and avoid printing, ink, and postage expenses.
In addition, payroll cards are easy for businesses to set up and manage. Some even include a mobile app that allows employees to manage their money on the go. Additionally, payroll cards can be backed by the Federal Deposit Insurance Corporation, meaning your company won’t have to worry about any security concerns associated with storing cash in the office.
However, while many businesses benefit from offering a payroll debit card, there are also some potential downsides. Some payroll card providers may charge fees for various reasons, including placing the company logo on the card or reloading funds to the card. You’ll want to ensure you know all the costs involved for you and your employees, as they should be disclosed before signing up for a payroll card program.
Access to Funds
For workers who can’t access their wages via direct deposit, payroll cards can help. These prepaid debit cards, also known as pay cards or reloadable paycheck cards, function the same way as a direct deposit but with the added benefit that employees can use the card to withdraw cash and make online/in-store purchases.
These cards typically have a logo from one of the major credit card companies (Visa, MasterCard, American Express) and are linked to an employee’s account at a financial institution. The cardholder can track balances and transactions on an online portal or app, receive alerts for low balances, etc. The cards can be used anywhere that accepts the credit card company’s debit card brand — including ATMs and grocery or retail stores.
The convenience of payroll cards and robust security measures can drive employee loyalty. The fact that salaries are credited automatically and instantly to the card eliminates issues with check bounces, bank strikes, and other delays that can cause frustration for employees who need a quick way to spend their salary.
Using payroll cards can also save employers money on processing costs. Compared to traditional paper checks, reloadable payroll cards can reduce expenses associated with issuing payments, re-issuing lost or stolen checks, and the cost of postage for mailing.