What You Need to Know About Payroll Debit Cards

by Emily Guy Birken · 8 comments

If you’re one of the more than 70 million Americans who work as hourly employees, chances are good that you may soon be offered a payroll debit card instead of a traditional paper check on payday.

While these debit cards are much less expensive for employers, they can come at a cost for the employees who are depending on them. What’s worse, some employers are (illegally) telling their employees they have no other choice than to accept their pay in the form of a fee-laden debit card.

Before you find yourself in a confusing and potentially contentious conversation with your boss, here’s what you need to know about payroll debit cards:

How Payroll Debit Cards Work

These cards are very much like any other prepaid debit card, including the logo (and backing) of major brands like Visa and MasterCard. But instead of loading money onto the card yourself, your employer will load your earnings onto your card every pay period.

Payroll debit cards can be used just like a debit or credit card, so employees receiving them can generally use them for purchases at stores and to pay their bills online. Some also come with convenience checks, which allow users to pay their rent or other non-card-friendly bills.

These cards come with some consumer protections in case of loss or theft, although the protections are generally less robust than those of regular debit and credit cards. (For instance, Visa’s liability policy for payroll debit cards doesn’t protect you if your card is used at an ATM by an unauthorized user.)

Costs to the Employee

The biggest concern about these cards is that they can often be fee-heavy. These fees can include:

  • Monthly fee
  • Fee for each ATM transaction
  • Surcharge at the ATM
  • Inactivity fee
  • Fee after a certain number of transactions per month
  • Card replacement fee
  • Fee for using the card at a point-of-sale terminal (such as those in stores)
  • Load fee, when funds are put on the card
  • Fee to have a check cut from the card

Considering the fact that each fee could range anywhere from $1.50 to $10.00, employees with particularly fee-laden cards may find all of their earnings eaten up by fees.

Know Your Rights

In a recent lawsuit over these payroll debit cards, Natalie Gunshannon, a McDonald’s employee, claims they told her she couldn’t opt for a different method of payment.

Unfortunately for employers, refusing to give an alternative payment option to the payroll debit card is illegal. The Consumer Financial Protection Bureau mandates that all employers offer their employees a choice of earnings payment options. (In many cases, this choice will be between the payroll debit card and direct deposit, as they’re the two least-costly options for employers.)

In addition, if you do opt for the debit card, know that federal law requires disclosure of all payroll debit card costs. In many workplaces, employees will be offered in-person training regarding card use, as well as literature on the specifics of the card. If you’re not offered such disclosure, let your employer know that you need to know what to expect from your payroll debit card.

The Bottom Line

Payroll debit cards can be a boon to some of the millions of workers who are currently unbanked. However, it’s very important that employees offered such payment are completely aware of the possible consequences of receiving their wages in this fashion.

Would you use a payroll debit card?

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  • Christine says:

    Oh this is a such a good topic! I work as a personal banker and I despise these cards! I feel like it’s a live-paycheck-to-paycheck-forever trap. And not only do some employers convince their employees that this is the only way to get paid, I’ve also had customers tell me that their employer told them that the card is a bank account! There are so many things wrong with these cards I could go on for days. Great post!

    • David @ MoneyNing.com says:

      These cards are pretty bad Christine. Hopefully the Consumer Financial Protection Bureau (CFPB) will do something about this soon.

  • David @ Simple Money Concept says:

    Perfect. Another way to spend the money without see it…

  • Aldo @ MDN says:

    Great post. I didn’t know anything about these cards. I’ll make sure to spread the word around.
    I can’t believe that some employers are breaking the law to help themselves out…oh wait, nevermind.

  • John @ Sprout Wealth says:

    Nice post! I wrote on this about a year ago and think it’s a shame these cards are being pushed on as many hourly employees as it is. Having worked in a bank years ago, I understand that there are always going to be people that are unbanked. The problem I have with these, beyond the fees, is that how does this help people manage their finances? More often than not, I’d think it would make it more difficult to manage them.

    • David @ MoneyNing.com says:

      Those who have their income loaded on a prepaid debit card probably aren’t thinking about long term finances. With checking account replacements so readily available that includes free direct deposit, it’s hard to imagine why people put up fees like this!

      • Emily Guy Birken says:

        David, I think you’re right. What struck me about the Natalie Gunshannon case was that it took someone who was only working at McDonald’s to make ends meet (she was trained as a massage therapist and had trouble finding a job) to bring the issue to light. Gunshannon banks with a credit union and really seems to have her ducks in a row, and I think her employers weren’t used to dealing with someone who knows her rights.

        • David @ MoneyNing.com says:

          Good for her though.

          And as an aside, I think McDonald’s, due to its size, always get the bad end of the stick because everybody likes to paint the company as the bad guy. But this very fact helps bring a ton of good informational press to the public, which ends up helping a ton. So Mickey Ds end up helping our society quite a bit in a roundabout way! 🙂

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