Millions of employees are paid by payroll card. A payroll card is a debit card that an employer issues to an employee, with the employee’s wages stored on the card. It can generally be used like any other debit card, but it is not a traditional debit card because it is not linked to a bank account held in the employee’s name.
According to the FDIC, payroll cards were used to distribute an estimated $15.9 billion in wages in 2007. Wal-Mart, the largest private employer in the U.S., moved to “100% paperless payroll” in late 2009 for its 1.4 million employees by automatically loading wages onto a payroll card for employees who do not have or want direct deposit. Payroll cards are marketed as a low-cost, “green,” safe and convenient way for employers to pay their employees.
However, payroll cards can come with multiple fees that cut into an employee’s net earnings. Payroll cards can charge a variety of fees, including: ATM transaction fees, point-of-sale purchase fees, dormancy fees, dormancy fees, duplicate or replacement card fees, overdraft fees, live customer service fees, value re-load fees, and fees to get funds by check. Employers contract with banks to offer payroll cards, so there may be multiple fees if the employer does not negotiate for limited fees in the contract.
Employees need to see payroll card terms and conditions upfront, and employers should give employees the choice to opt out and receive a paper check if they don’t want to use a payroll card or a bank account direct deposit.
Consumers Union’s model state law would provide the following protections:
• One free means of withdrawing wages per pay period
• No fees for:
Initiation, loading, participation, point-of-sale or other fees for ordinary usage
Overdraft, shortage, low balance or declined transactions
Inactivity or dormancy
Balance inquiries or other transaction information
Closing an account or issuing payment of the remaining balance
• The option of receiving electronic statements
• The option of receiving convenient forms of transaction information like low balance text alerts
• Two free written statements in a 12 month period
• Monthly statements for no more than $1 per month
• No loans, including lines of credit, cash advances, payday loans or overdraft loans
• Written disclosures in the employee’s primary language
• Written, voluntary employee consent before employers can issue wages on payroll cards, and
• A requirement that employers set up the payroll cards so that the employees’ funds will be FDIC-insured.
Click here to read the model law and to see if your state has any payroll card protections.
Click here to read our consumer tips for employees who are offered a payroll card.
If you are an employer thinking about offering a payroll card to your employees, read our information for employers about payroll cards.
WARNING: If you arrange to have your wages deposited onto a “prepaid debit card” that is not offered by your employer, then you may have fewer protections! In addition to paying fees to use your card, you may not be able to get your money back if your card is lost or stolen or if you find a billing error on your account statement.
For more information on prepaid cards, click here.
Do you receive your wages on a payroll card? If so, submit comments below.