Pros and Cons of Payroll Cards
Payroll cards are becoming more common among small businesses with employees who have different banking needs. Payroll cards are a kind of prepaid card that you can use to pay employee wages and commissions. Prepaid cards are also great for affiliate payouts. Payroll cards offer “unbanked” team members easy access to their pay without needing to open an account with a bank or credit union.
An understanding of payroll card pros and cons will help business owners determine whether this solution could work for them.
The Pros and Cons of Payroll Cards
Payroll cards come with pros and cons for employers and employees.
Payroll Card Pros for Businesses
The following are some of the pros of payroll cards for businesses:
More Cost-Effective and Secure than Cheques
A payroll card program can reduce the costs associated with issuing cheques. It is also more secure than cheques, given that cheques can be lost in the mail and duplicate cheques can be cashed fraudulently.
Efficient Payroll Processing
Payroll cards use API-based technology that increases the efficiency of processing payroll. This system allows companies to deposit money quickly and conveniently.
Increases Employee Satisfaction
Employee welfare and satisfaction are essential to the success of any company. Showing a willingness to be inclusive of unbanked employees will help your business foster good relationships with your team members. This, in turn, could boost employee loyalty.
Payroll Card Pros for Employees and Affiliates
Unbanked employees or individuals who wish to avoid relationships with banks can benefit from the flexibility and ease of use of a payroll card. The following are some of the advantages of payroll cards and prepaid cards for employees and affiliates:
Solution for Employees Without a Bank Account
According to the European Central Bank, close to 13.5 million people in the euro area are unbanked (don’t have bank accounts or access to financial services). Payroll cards offer a way to receive salaries, commissions, and payouts without opening or having access to a bank account or having to rely solely on cash.
Payroll cards and reverse ATMs’ popularity reflect the need for innovative solutions for individuals with different financial needs. Payroll cards can be used in any institution that accepts debit cards by completing the transaction through the merchant’s payment gateway either in-store or online. If you have a merchant account, you can also accept payroll cards and prepaid cards as payment methods in your store.
Promotes Financial Wellness
Some payroll card providers offer features such as a savings purse managed via an app to help employees budget and manage their spending. Payroll cards also help employees stay out of debt by only allowing the cardholder to spend money they have (as there is no credit function or overdraft).
Instant Access to Funds
Funds loaded onto a payroll card are instantly accessible and easy to use.
Payroll Card Cons for Businesses
Payroll cards are generally positive for businesses. The main “con” is that some countries have laws that state how employees must be paid. Check any pertinent laws in your country to make sure payroll cards are a legal way to pay your team members. You may be able to offer payroll cards alongside other payment methods such as direct deposit and cheque.
Payroll Card Cons for Employees
There are certain downsides to payroll cards that employees should take into account. These include:
No Accumulation of Interest
Unlike debit and credit cards linked to savings accounts, the funds stored on payroll cards don’t accumulate interest.
Fees
Payroll card providers charge fees for maintaining and using the card.
Security
Payroll cards—like cash—can be lost or stolen. The upside is that payroll cards (unlike cash) can be blocked remotely to prevent unauthorised use, and can be replaced for a small fee.
FAQs
What Is a Payroll Card?
A payroll card is a card issued by a payroll card provider that gives employees access to their pay without setting up a bank account. A payroll card works much in the same way as a prepaid debit card. Employers load the payroll card with an employee’s monthly salary; the funds are then available to withdraw cash and make card purchases. Regular prepaid cards can also be used for commissions and affiliate payouts.
Why Do Some Employees Need a Payroll Card?
Some team members may need a payroll card because they don’t have access to—or choose not to use—traditional bank accounts. There are several reasons why individuals may choose not to work with banks or have a credit or debit card. For example, some people may want to make purchases with greater privacy or have reasons not to trust the banking system as a whole. These individuals could benefit greatly from a payroll card.
Women represent 56% of unbanked individuals. Payroll cards therefore represent an important move towards financial inclusivity.
Is Issuing Payroll Cards Cost-Effective for Employers?
It may be cost-effective to provide the option to use payroll cards depending on the provider you choose. Processing payroll using more traditional payment methods also incurs costs. For example, the cost of printing and distributing cheques, or paying fees to a payroll company for handling direct deposits. The costs associated with payroll cards are generally offset by avoiding traditional payroll costs.
What Are the Fees Associated with Payroll Cards?
The fees associated with payroll cards may differ depending on the provider. Some payroll card providers may charge for fund transfers or balance inquiries. Employees who use payroll cards may also be subject to monthly maintenance fees or have to pay ATM withdrawal fees. Research the payroll card fees charged by each provider before choosing one.
Payroll Cards Are a Win-Win Solution
Payroll cards and prepaid cards in general are a great solution for employee salaries, commissions, and affiliate payouts. Their smooth functionality and independence from financial institutions make them a compelling innovation for both businesses and their team members.
Employers who embrace this payment method also go some way to bridging the gap in financial inclusivity that disproportionately affects women. Businesses that adopt prepaid or payroll card programs empower their team members, which is ultimately a win-win.
