Pros and Cons of a Payroll Debit Card

Filed Under Prepaid Debit Cards

I was reading another news item about another company that was introducing prepaid debit cards as a payroll solution for their employees and I started thinking about the pros and cons of that switch. I’m a huge fan of reloadable debit cards so I’m a proponent of these types of changes and it occurred to me that this is going to become common practice in the next few years. And, while I think it makes sense to use a payroll debit card, it’s still a good idea to consider the issues on both sides.

First, it’s important to understand that these payroll debit cards are real MasterCard and Visa Cards – they’re just prepaid cards and not credit cards. That means they can be used nearly everywhere a credit card can be used and they receive the same kind of protection as credit cards do. So they’re a safe and sound way to do payroll business.

A second point to make is that these cards would only be used for employees that have been receiving paper paychecks. If they’ve already signed up for an automatic payroll deposit into their bank account, this payroll check card wouldn’t even be offered to them. The card is simply designed to get rid of paper checks.

Now on the plus side, there’s a lot of evidence that using a payroll card will be good for the environment. Several sources site the reduced amount of paper a company will use by switching to an electronic pay distribution system. A company in New York called PayPerks even has a calculator on its website for interested parties to figure out how much they would save. The rough estimates are that a company can save on paper every payday to the tune of $75.00 per year per employee. That’s a lot of money if you have a lot of employees and a large incentive for companies to go green in this direction.

Another plus is that employees have more immediate access to their money. Since their cards are loaded automatically, they don’t have to make a trip to the bank to cash or deposit a check. They have access to the money right away.

So using a payroll debit card can be good for the company, good for the employee, and good for the environment. It’s a regular win-win-win. But there are a couple issues on the minus side of the equation that need to be considered too.

All prepaid debit cards come with fees – that’s how the issuing company makes its money. A paycheck debit card is no different. The biggest fees are usually the reloading fee and the monthly maintenance fee. On store-bought prepaid cards these fees run in the $3.00 to $6.00 range. That’s not a lot of money but it’s still an expense to factor into the equation.

Of course, most of these cards will probably not have the reloading fee because they’ll be loaded by a direct deposit and most companies waive a reload fee for those types of transactions. The monthly maintenance fee however won’t be waived, so it’s a recurring expense that will hit every card.

The real “hidden” expense on these particular types of cards comes if they’re not used. Then companies charge a dormancy fee along with the monthly maintenance fee. The fee is small, usually somewhere in the neighborhood of $2.00 a month. Companies maintain that the charge is warranted because they’re keeping the card open on their books and that’s an ongoing expense to them. I don’t know truly how much of an expense it is but they’re allowed to charge it and so they do.

But the good news is that dormancy fees are easily avoided because all someone has to do is use the card every now and then to keep it active. As little as once a month should do it. It shouldn’t be a problem, but for someone brand new to the prepaid card world it could be easily missed.

So payroll debit cards are coming and they’re coming fast. If you’re a paper check employee you might see one in your future as early as this year. It’s certainly a different payroll experience. Just keep in mind how they work and you’ll be just fine.