Paycards 101: How to Use a Payroll Card to Pay Employees

November 13, 2023

Learn about the pros and cons of using paycards as an alternative to paper checks and direct deposits, including their features and regulations.

A hundred years ago, if an employer asked their worker, "How do you want to get paid?" the employee probably would've said, "With a lot of money." While today's workforce may share the sentiment, the question has a very different implication today.

For modern workers, traditional paper checks or direct bank deposits aren't always the preferred ways to receive wages. This is why alternative payroll options, like paycards, are becoming increasingly common.

To explore why the popularity of paycard offerings has risen so quickly, the following guide will explain their basic characteristics and regulations, describe how they function, and compare the benefits and challenges they provide the organizations that use them.

Key Takeaways

  • A paycard is a way to pay employees who do not have or do not want to use a bank account. On payday, the employee’s wages are loaded onto their payroll card, which they can then use like a debit card.
  • Employers can work with a third-party payroll card vendor to pay employees via paycards. Employers must ensure that any vendor fees don’t reduce the employee’s wage below the minimum wage.
  • Payroll debit cards are an easy way for employers to pay unbanked employees, and sidesteps the costs of printing and distributing paper checks. But, fees, regulations, and integration with your payroll software can pose challenges.

What is a Paycard?

A paycard, also known as a Payroll Card and Payroll Debit Card, is an alternative way for employers to pay their employees instead of using paper checks or direct deposits. Similar to traditional debit cards, paycards allow employees to access and use their wages, but without a bank account.

So, on payday, instead of writing an employee a check or directly depositing their wages into a checking account, the employer will use those wages to load the card's funds. The employee can then use the card like a standard debit card, such as withdrawing cash from an ATM or paying bills online.

Paycard Laws

Employers who use payroll cards to pay their employees must follow certain federal regulations:

  • Electronic Funds Transfer Act (EFTA): Also known as Regulation E, the EFTA imposes several requirements on employers who use paycards, such as disclosure rules, error resolutions, card use rules, and account details (e.g., associated fees). The EFTA requires employers to offer at least one other payment option to employees aside from a paycard. In other words, employees must have the option to choose between using a paycard or some other method (e.g., paychecks or direct deposits) for receiving their wages.
  • Fair Labor Standards Act (FLSA): Employers who offer paycards still must meet the minimum wage rate requirements outlined in the FLSA. Therefore, if the paycard has any fees, employers must ensure those fees don't lower an employee's wages below the federal minimum wage.

Employers should also confirm with their state's labor office if there are paycard regulations for their specific area(s).

How do Paycards Work?

If an employer chooses to offer payroll cards to their employees, it will first need to work with a paycard vendor, like Visa. That vendor will manage all the financial logistics associated with using the cards and will typically partner with a banking institution to assist with necessary transactions.

As each employee chooses to enroll in the program, the employer will request a new account, card, etc. with the vendor, who'll organize everything with their partner institution. Each pay period, the vendor and their partner will receive and transact the employee's wages to the card via electronic fund transfer (EFT). Employees use the same card throughout their employment unless something happens to it (e.g., damaged or lost).

Learn More: How Does Payroll Processing Work?

Payroll Card Fees

Paycard vendors sometimes attach fees to their use based on the agreement with the employer. These can include ATM withdrawal fees, inactivity fees, or cash-back fees. By law, vendors must inform an employee about these fees before the employee enrolls in the program.

Employers must also ensure any administrative fees for the paycards don't reduce an employee's wages below the federal or state-required minimum wage rate.

Losing a Payroll Card

Like standard debit cards, paycards are protected under the EFTA in case the card is lost or stolen. If an employee informs the vendor within two business days, that employee is only legally liable for up to $50 in fraudulent transactions on the missing card.

If, however, the employee takes longer to report the card as missing, that liability increases to $500. Vendors may also charge employees a fee to replace the missing card.

Who Should Use a Payroll Card?

For employers, payroll cards are most useful when they have unbanked employees (i.e., employees who don't use a bank account). The U.S. Federal Deposit Insurance Corporation (FDCI) estimates that in 2021 4.5% of all U.S. households (around 5.9 million) didn't use a bank account.

Without a bank account for direct deposits, these employees usually rely on printed paychecks, include can become costly for employers the larger the organization becomes 

For employees, using a payroll debit card can provide faster, easier access to their wages than having to set up a bank account and wait for a printed check to arrive or a direct deposit to process. Cashing paper checks can also include processing fees, thus reducing an employee's net pay.

Payroll debit cards may not be the best option for those who regularly change jobs, however, since the card is usually tied to a specific employer.

Payroll Cards Pros and Cons

Payroll cards have a few benefits and drawbacks for employers and employees. Consider the following if you’re thinking about offering them as a payment option.





Faster and more efficient payroll processing

State regulations can complicate setting up a paycard program or enrolling employees in different states

More reliable distribution of funds than relying on paper checks

Employee interest and participation aren't guaranteed

Help reduce costs associated with printing and mailing checks

Integrating a company's payroll software with the vendor's paycard software can be difficult


Quicker earned wage access

Can come with different types of fees that add up over time

Easier to set up and use than a bank account

ATMs don't always provide exact dollar amounts, so employees may not be able to cash out their full wages

Lost or stolen paycards are more secure than missing paper checks

Recovering lost funds can be difficult

Partner with a Flexible Payroll Platform

Despite their ease and efficiency, setting up a paycard system requires employers to integrate their payroll software with the vendor's preferred software. If the two platforms don't communicate with each other, it can make the setup process even more stressful and time-consuming.

One of Paylocity's goals is meeting clients where they are, which includes building a platform that can be easily integrated with hundreds of vendors or customized with its developer-friendly APIs. Regardless of the paycard vendor an employer chooses, our HR & Payroll software can make the integration and setup process a breeze.

Want to find out more? Request a demo of our HR and Payroll software today!


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