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What is a Pay Card and How Does it Work?

Do you know what a pay card is? Pay cards don’t seem like the main form of payment that is offered at jobs. Over all of my different jobs, I have never heard of a pay card until I started reading about it in a different article. It seems to be a newer way of payment than paper checks or direct deposit. This information sparked some curiosity in me to research it more and write an article just in case others never heard of this option of pay either. According to the information that I found out below, pay cards might be a great payment option for you.

What is a pay card?

A pay card, or a payroll card is a prepaid card arranged by the employer through a bank or a financial institution. This is for the purpose of depositing your paycheck onto the card instead of giving you a paper check or depositing the money straight into your bank account. It’s a plastic card that is loaded with the employee’s wages or salary pay on pay day. This is a good option for employees that don’t have bank accounts since they are not needed for this payment option. It can be used just like debit card. Employees can save, withdrawal money from ATM or make purchases.

How Does it Work?

Employers usually involve a bank as a third party to get pay cards. The banks electronically allow money to be transferred, but unlike debit cards, the bank is connected to a pay card vendor, not the actual employee.

Once the third party bank is involved, the employer sets up and enrolls their employees into the pay card program. The vendor distributes the pay cards to the employees. Using the employer’s chosen payroll software, they pay their employees and it deposits the money onto each employee’s pay card. The employees can see these funds in their pay card accounts immediately unlike written checks. This process is almost the same as direct deposit except employees without bank accounts can use them. 

What you should know before getting a pay card?

Before deciding to use a pay card, you should probably read the fine print. I know we all like to just skim it and click agree because we don’t want to read all of those little words. You might want to read it this time though because there can be some disadvantages to choosing a pay card over direct deposit or a paper check. Once read, you should consider the fees and see if those would affect you badly.

What kind of fees do pay cards have?

Pay cards don’t normally don’t have maintenance fees like a debit card, but there are things that you could be charged for. This could include a purchase fee, activation fee, inactivation fee, customer service fee, reloading cash fee, and an ATM withdrawal fee.

The one fee that might not apply, would be the overdraft fee. Some pay cards let you use more money than you have in your account, like a credit card. This means that if you pay past your limit, you will have to pay an overdraft fee. There normally is a way to get protection on your pay card so you won’t be able to go above the amount of money you have in your account, avoiding overdraft fees.

The last fee only happens if you’re not careful. The card replacement fee. Everyone knows that things can get lost or stolen, but the financial institution will still charge a fee to give you a new one. The starting pay is $50 if you notice that it’s gone within the first 2 days. The fee cost goes up from there.

If you think about the difference between the different payment methods, pay cards can be replaced for a fee, cash or check could get lost, stolen, or even destroyed and you wouldn’t be able to replace it.

Can you manage a pay card?

If you are not good at managing your money, I would not recommend a pay card because those fees could hit you hard if you use your pay card like a credit card. You also wouldn’t be a good fit for a pay card if you switched jobs a lot. Then you would just end up with a lot of pay cards that you’ve paid fees on every time you got a new one. Also, if you have more than one job, your pay cards would not be connected and you’d have multiple pay cards that could be hard to manage, along with double the fees. The best reason to have a pay card is if you don’t have a bank account. Pay cards give employees without bank accounts something similar to direct deposit for their pay day.

According to a report from American Payroll Association in 2017, 46% of employees with pay cards have bank accounts as well. The employees that have pay cards and bank accounts use their pay card to gradually send automatic deposits to their accounts. They do this so they can stop themselves from spending too much. It can get difficult to manage though.

What kind of businesses should use pay cards?

Accordinging to a Federal Deposit Insurance Corporation survey, 5.4% of households in the United States didn’t have bank accounts in 2019. If you have employees that are unbanked, then having pay cards as one of your payment options would be a good choice for you. Your employees are probably getting charged a fee for ever paper check they cash if they don’t have a bank account. So giving those employers the option of a pay card would support those employees by reducing the costs of cashing checks.

What are the Pros and Cons of pay cards?

Pros:

Employees don’t need to have a bank account to have a pay card. Their money is just reloaded onto their pay card every pay day.

Pay cards have more protection and security since it is electronic and it can’t get destroyed like a paper check.

Employers save time and money. They don’t have to go through the trouble of printing out and sending paper checks to employees that don’t have bank accounts.

Employees have the opportunity to get their pay immediately instead of having to go to the bank to cash it with a fee.

Employees can shop just like if they had a debit card. They can pay bills, online shop, shop in stores, and transfer money just like a real bank account.

Cons:

Employees might have to pay fees. Activation fee, customer service fee, reload fee, etc

Employees will have trouble withdrawing money at an ATM  because of the large fee.

Employees will have trouble withdrawing money at an ATM  because of the large fee.

Bottom Line:

If you can’t get a bank account or don’t have one, pay cards will be a good option for you. Before deciding to get one though, consider the fees that it comes with and make sure you are getting paid enough to cover those fees. If you can’t I would stick with a regular paper check even though there is a check cashing fee.

Written by Tessa Braybrook

Tessa joined Superior Trucking Payroll Services in September of 2022 after graduating with a Bachelor’s degree in multimedia journalism from Grand Valley State University. She has a passion for writing and binge-watching TV series.

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