Does your boss offer you the option to get your salary on a payroll card? If so, experts say you should weigh the pros and cons of getting paid on plastic.
Payroll cards, a type of prepaid card onto which wages can be loaded, are becoming more common because they offer advantages over paper checks, experts say. In fact, big employers across the country – from Home Depot to Taco Bell to Wal-Mart — are now using payroll cards.
“Payroll cards offer tons of cost savings for employers, but also convenience for employees,” says Madeline Aufseeser, senior analyst for the financial services consulting company Aite Group, which conducts research on payroll cards.
Employers are expected to load about $42.8 billion onto cards in 2013, more than double the amount from 2010, according to a 2013 Aite Group report.
But is a prepaid card the best way to get your wages? No, says Linda Sherry, director of national priorities for Consumer Action.
If you have a checking account, direct deposit is the cheapest choice with the most perks, according to Sherry. One major plus is that this method of collecting your pay can help you get free checking: Many banks will waive monthly checking account maintenance fees for customers who get at least one paycheck per month automatically transferred into their account, Sherry says.
“Banks are a good thing for consumers,” says Sherry, who notes that developing a relationship with a bank, in addition to providing a convenient way to access money, also can help consumers build credit through credit cards and loans.
Pros of payroll cards
However, for consumers who do not have a bank account — especially those who have had trouble getting one due to past banking problems, such as repeated overdrafts — a payroll card can be a good option, Sherry says. Here are four pluses of payroll cards:
- You can get your money quickly. Just like with direct deposit into a checking account, having your salary loaded onto a payroll card allows you to get rapid access to your funds, Aufseeser says.
- Payroll cards have multiple uses. A payroll card works in the same way as a general purpose prepaid debit card. “They're multifunctional,” Sherry says. “You can use them to buy things, get cash from an ATM and pay bills as well.” That, she says, can make life easier for consumers who don't have a traditional debit card from a bank: “You can pay bills online without having to go out and buy a bunch of money orders.”
- Protection if the card is lost or stolen. Just like money sitting in a bank account, wages on a payroll card are insured by the Federal Deposit Insurance Corporation (FDIC). This applies only to “real payroll cards” (a card onto which an employer loads an employee's wages) — and not necessarily general purpose prepaid cards, Sherry adds. If a card is lost or stolen, the wages can be reloaded and the card reissued, Aufseeser says.
- Ease of use. Employees who don't have a bank account won't have to retrieve a paper check, find a bank or check-cashing business and pay a fee to cash their paychecks. “All of that takes time and effort,” Aufseeser says.
Fees: the downside of payroll cards
Each state has its own wage and labor laws but, in general, there should be a way for employees to get their money each pay period for free, says Lauren Saunders, managing attorney for the National Consumer Law Center. For example, she says, you might be able to go into any member bank and withdraw your entire salary without a fee. However, cardholders might encounter other fees, such as:
- ATM fees: Many payroll cards offer fee-free withdrawals at certain ATMs, Aufseeser says. However, there typically are fees for non-network ATMs. For example, New York state employees who get wages via a Chase payroll card get two free withdrawals per month from non-network ATMs, then pay $1.50 a pop afterwards, on top of any fee charged by the ATM owner. So, it's important to find out exactly which ATMs are in-network for your card and if you have to pay a fee to use them, Saunders says.
- Replacement card fees: If your card is lost or stolen, you might have to pay to get a new one, Saunders says. For example, Home Depot employees must pay a $6.95 fee for standard delivery or $15 for express delivery for a replacement card.
- Overdraft fees: Some cards have opt-in “overdraft protection” programs in which you could get hit with a fee as high as $25 or more if you spend more than you have on your card, Saunders says. “Don't opt in,” she recommends. “It's really just permission to charge you a very large fee that comes out of your next paycheck.”
- Other fees: Some payroll cards charge a fee for checking your balance, for a denied transaction or even for making a PIN-based purchase — choosing the debit option over credit — at a store, Saunders says.
Another problem: some employees have complained of being pushed by their employers to get paid by plastic. One former McDonald's employee is suing the franchise where she worked, alleging that her boss forced her to take her pay via a payroll card instead of her preferred method of direct deposit into her credit union checking account.
“That's something we're worried about,” Sherry says, referring to the possibility of employers foisting payroll cards on their workers.
Recently, the federal Consumer Financial Protection Bureau (CFPB) issued a bulletin stating that, under federal law, employees can't be made to get their pay on a particular payroll card. The CFPB states employers can require electronic deposit of salaries if the employee is allowed to choose the financial institution where they will get the deposit. Or the employer may designate the institution, as long as the employee is given another option — such as receiving pay via paper check or cash.
An employer who offers payment via a payroll card should give employees at least one other option, Sherry says. So, she says, if you try a payroll card and decide you don't like it, you should be able to switch to another way of getting paid.
“If you don't like it, you're not stuck with it forever,” Sherry says.