The Pros and Cons of Paying Employees with Payroll Paycards

Photo of a woman worker holding a smartphone and a payroll paycard supplied by her small business employer in New York State.

Essentially a debit card, payroll paycards help employers pay workers who are unable to get a bank account. Like anything else, paycards have pros and cons.

Employees who are unable to get a bank account are often referred to as unbanked or underbanked employees. In New York City, the percentage of unbanked households is 11.2%. And across the U.S. the percentage is around 10%.

Some employees opt for paycards to split their pay between bank accounts. One reason for doing this is to facilitate money management.

Paycard Pros

  1. Convenience. A payroll paycard eliminates the need to wait in lines to cash checks. Wages are available on payday, even if an employee is off that day.
  2. Safety. Workers don’t need to carry substantial amounts of cash. Lost or stolen cards can be replaced without loss of funds. For security, payroll paycards are PIN-protected.
  3. Cost. Saves check-cashing, and mailing fees.
  4. Time. Payroll cards are preferred by employers who view writing and reconciling physical payroll checks as a waste of time.
  5. Notification. Text alerts are sent each time the paycard is loaded, used, and what type of transaction occurred. Employees can also type in PL to receive the current balance.
  6. Honoring (cashing) checks. Banks often require positive pay—a process that entails sending the bank an electronic file for each payroll check with check numbers, date, and payee. Paycards allow employers to avoid this chore.
  7. New hires. Employers may keep a supply of blank cards on hand for new hires. This makes it possible to pay unbanked workers on time.
  8. Bill Paying. Employees can often use paycards to pay their mobile phone charges, and rent.

Employers and employees alike will be happy to learn that most payroll cards offer smartphone APPs to help users track their spending and balances. And for ESL and Spanish workers, there are paycard APPs that offer language support, as well as multilingual call centers for one-to-one help.

Paycard Cons

  1. Fraud. Even though paycards are safer than carrying cash, there’s still a remote possibility of fraud. This is due to the use of fraudulent Russian and other foreign paycards such as Green Dot Bank cards that may be unsafe.
  2. ATM limits. There might be a daily ATM limit. And as with credit cards used to purchase meals, and other items, there might be a temporary hold on funds to cover restaurant tips. However, this is a relatively minor inconvenience.
  3. Fees. Even though laws specify that employees must be able to get their wages without any fees, an employee might incur fees if they use an ATM that’s not in their paycard’s network. It’s important to check with the card issuer regarding fees for replacement cards, balance inquiries and other reasons.
  4. Pay Stubs. Not really a con, but it’s important to note that using payroll paycards isn’t a substitute for supplying employees with required payroll wage information.

How do payroll paycards work?

Great question. Just like a bank account, a payroll paycard features a bank account number and a routing number. So, during every employee pay period, the payroll company sends an ACH file with the routing and account numbers for the payroll card, just as if it were a direct deposit into a bank account.

In addition, employers can manage paycards through online portals, APPs, and by phone. One thing worth remembering is that employers can’t mandate that employees accept paycards. In fact, most states require written authorization to pay wages with paycards.

What is an ACH file?

According to, “an ACH file is a fixed-width, ASCII file with each line exactly 94 characters in length. Each line of characters is known as a ‘record’ and is comprised of various ‘fields’ that are at specific positions within that line. In a properly formatted file, records must follow a specific order.”

What happens when employees abandon paycard funds?

After a state-specified period of years, unclaimed payroll funds, be it in the form of a paycard or a paycheck, state escheat laws will apply. In New York, abandoned money or securities are often required to be transferred to the New York State Comptroller’s Office of Unclaimed Funds on an annual basis.

It’s good policy for employers to consult with their legal counsel, and/or payroll provider to make sure they’re fully compliant.

How can workers and businesses locate unclaimed payroll funds?

The process for locating unclaimed funds in New York State is easy. Simply visit the Office of the New York Comptroller Search for Lost Money website and complete the online search.

Can employers use paycards instead of checks and direct deposits?

No. Legally, employers must provide employees with other methods such as paper checks and direct deposits.

As you can see, when it comes to payroll few things are ever simple. There are compliance requirements, dealing with your local department of labor, federal laws, and more. However, if you have unbanked employees in New York, paycards may be a huge help both to your employees as well as to your business.


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