Why Payroll Cards Are a Terrible Way To Pay + 4 Exceptions

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Your employees deserve to get paid quickly and reliably so they can use their money when they need it. 

Considering that, offering your employees payroll cards as a mode of payment seems to make perfect sense. Rather than sending their paycheck for each pay period to a bank for direct deposit, you’d add their funds to a payroll card that they can use like cash anywhere debit cards are accepted.

Realistically, though, payroll cards aren’t usually a viable option for long-term employee-employer relationships. 

This guide breaks down how payroll cards work, why some employers choose to use them, why they’re usually not the best option, and a few situations where using payroll cards could work.

The Logic Behind Payroll Cards

A payroll card is basically a prepaid debit card. In fact, it works just like a debit card that’s connected to a bank account, except with no bank account involved. Instead, the employer loads the card with an employee’s earned funds, and the employee can begin using their cash immediately.

This eliminates the potential delays with direct deposits and paper checks clearing through an employee’s bank. Payroll cards also have the following benefits:

  • It’s usually easy to replace a lost or stolen payroll card if needed
  • They can be used at ATMs and for online purchases and automatic bill payments
  • Some payroll cards allow employees to request some or all of their paychecks early
  • Eliminates check-cashing fees 

Depending on the payroll card servicer you use, you could also see other beneficial features, like integration with payment apps like Apple Pay and Google Pay, for even more financial flexibility for employees. Some card servicers also offer cashback rewards and a savings account option for employees to gain interest on their earnings. 

Why Payroll Cards Wind Up Causing Problems

If you’re thinking that payroll cards don’t have any downsides, think again. Although they certainly do have some pros for employees and employers, they aren’t without their flaws. 

Most notably, payroll cards can come with numerous fees that add up quickly for employees. For example, some payroll cards charge employees an activation fee just to set up their accounts, plus transaction fees every time they use their card, fees for using bill pay, fees for account inactivity, and monthly maintenance fees. 

That means that at least some of your employee’s earnings are likely going toward fees they don’t want to deal with, many of which banks don’t charge for checking accounts. Employers can choose to pay these fees, of course, but those costs are in addition to the monthly fee you’ll already be paying per employee for the payroll card service.

Another problem employees might face with payroll cards is not being able to use their cards for transactions with open-ended pending holds, like buying gas at the pump or opening a bar or restaurant tab. 

Keep in mind that states also have some control over payroll cards written in their laws, usually requiring employers to also offer another payment method and explain related fees to their workers. 

For example, Georgia allows employers to pay employees with payroll cards, but employees must be informed of all fees associated with that payment method. In Illinois, employees must be offered another payment method in addition to a payroll card and give their written consent to choose a payroll card for their pay.   

Also, employers in some states may be responsible for payroll card fees, like Nebraska, which requires employers to pay all associated fees. In Kansas, employers have to pay replacement fees for lost or stolen cards.

Considering the fees, limitations, and state laws surrounding payroll cards, this payment method simply isn’t viable for many businesses’ payroll management compared to direct deposit.

4 Scenarios Where Payroll Cards Can Work

Although payroll cards may not always make the most sense for paying your regular, full-time workers, there are a few scenarios in which they could be a sensible option.

Unbanked Employees

One of the more common reasons for employers to offer payroll cards is to provide an alternate solution for employees without a bank account. 

Direct deposit won’t work for these employees, obviously, but paper checks can. However, paper checks come with the inconvenience of having to visit a check-cashing location and the employee paying fees to cash their check. Paper checks can also easily be misplaced or lost, resulting in the employer having to cancel the original and issue a new one.

With a payroll card, your employee will have their funds available on their card without any extra steps in between.

Seasonal and Temporary Workers

Rather than adding steps to your payroll processing for seasonal and temporary workers to enroll them in direct deposit, you might choose to use payroll cards with them instead. 

You’ll avoid fees related to direct deposit and cutting paper checks, potentially resulting in reduced payroll costs for employees who don’t work for you year-round, and your employees can still get paid fast and reliably. 


Similar to seasonal and temporary workers, contractors typically don’t perform regular duties for a company all year or have a set salary. Therefore, you might find it more affordable to pay a contractor with a payroll card than to set them up with direct deposit or paper checks, especially if their contract is only expected to last a few weeks or months.

Contractors who provide services remotely for your company might especially appreciate payroll cards over paper checks, which can get lost or damaged in the mail, resulting in a longer wait for their pay. 

Small Businesses

Small businesses with just a few employees and simple payroll processes might choose to offer multiple payment methods, including payroll cards. 

Your employees will probably like choosing how to get paid, making it an easy way to keep them happy. And because most payroll card servicers charge a monthly fee per employee, your fees won’t stack up too much with a small team. 

Bottom Line

Payroll cards have their benefits. If you have just a few employees, have employees without bank accounts, or work with seasonal or temporary employees or contractors, paying with payroll cards might help you save on some payroll fees compared to cutting paper checks or paying via direct deposit.

However, payroll cards can have lots of fees, and depending on the state, you, as an employer, could be responsible for paying for them. You also need to make sure you offer another form of payment if your state requires it.

Whatever payment method you ultimately choose for your employees, make sure you use reliable payroll software to manage your payroll. Payroll software tracks employee timecards and calculates pay and taxes accordingly, freeing up the time you spend processing payroll.

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