It's been a long time since I worked in a job where my employer handed me an envelope with a paycheck in it on Friday, and I rushed to cash it before the bank closed for the weekend. Like many people these days, I get paid via direct deposit into my bank account. But what about the millions of Americans who don't have bank accounts? One popular alternative to the traditional paper paycheck is a plastic one. "Payroll cards are growing faster than we expected," says Madeline Aufseer, senior analyst with the research and consulting group Aite Group. "More and more employers have jumped on the bandwagon."
A payroll card is a type of reloadable debit card. If you get paid this way, your wages will be loaded onto the card. You can then use the card to get cash from an ATM, pay bills online or to make purchases anywhere that card is accepted. (Depending on the brand on the card -- Visa or MasterCard, for example -- that means anywhere those cards are accepted).
For employers, loading payroll onto these cards can be less expensive and reduce fraud. For employees, these cards mean their paychecks are available immediately (there will be no holds on funds while checks clear, for example) and they can eliminate check-cashing fees for those who don't have traditional bank accounts. Some cards are even "portable," meaning they can be used with multiple employers, and you can add funds from other sources.
The National Consumer Law Center, which represents low-wage workers, notes in a press release with the American Payroll Association, that "payroll cards can offer unbanked workers an economical, safe and convenient way to receive their wages."
But these cards aren't without critics. A fast-food worker has sued her employer over the fees charged, alleging that those fees meant she was effectively earning less than the state-mandated minimum wage. While Aufseer says most employers are following "best practices" with these cards, employees should still make sure they understand how they work.
What to watch out for
If your employer wants to pay you with a payroll card, here are some important things you should know.
How much it costs. You must be given a disclosure of fees and it's important to familiarize yourself with them, as well as to understand how to avoid them. These might include out-of-network ATM fees, inactivity fees, fees for purchases made with a PIN (rather than a signature debit transaction) or balance inquiry fees.
How to get cash. At a minimum you must be given the opportunity to get your full wages for free once per pay period, typically through a cash withdrawal at a financial institution that accepts the brand of card you carry, or by writing yourself a check. Other ways to get cash include ATM withdrawals or by requesting cash back at the register when you make a purchase. In its factsheet on payroll cards, Consumer Action suggests you find out whether there is a large surcharge-free ATM network available to get cash from the cards, and whether you can check your balance easily, and for free, when needed.
Keep track of your spending. You must be given access to your account history for at least 60 days. Make sure you keep copies of your statements. Not only is keeping track of your spending a good budgeting strategy, but you may need those statements if you apply for a mortgage. And don't worry -- your employer won't know what you purchase with your card.
Fraud prevention. You won't be held responsible for most fraudulent use if you report the loss, theft or misuse of your card immediately. So make sure you understand what to do if your card is lost or stolen, or if your card number is compromised in a data breach. Keep contact information for the issuer handy, monitor your account for suspicious activity and report problems immediately. (Some credit monitoring services will monitor online sources where this kind of information is sold and alert you if your card number shows up there for sale. You can also keep tabs on your credit report by getting your free credit scores through a service such as Credit.com. Sudden changes in your credit scores can be an early warning sign of identity theft.)
Alternatives. The CFPB warns that "federal law prohibits employers from mandating that employees receive wages exclusively on a payroll card." Alternative options, such as direct deposit, may depend on what's required under your state's laws. (Your state may have other laws that apply to payroll debit cards as well.)
Note that if you do get paid with a payroll debit card, you will still get a separate paystub that shows information about your wages, tax withholding, benefits etc.