Payroll Card Pros and Cons for Small Employers
The real pros and cons of payroll cards: what they cost employers and employees, the federal rule you cannot ignore, and a test before you offer them.
Payroll Card Pros and Cons
What they actually cost, the rule you cannot break, and whether a small team needs them at all
Payroll cards get written about in two registers. Vendors describe them as a modern, inclusive way to pay everyone, while consumer advocates describe them as a mechanism for charging low-wage workers to access their own money. Both are accurate about specific programs, so the individual card matters far more than the concept, and this guide shows you how to judge the one you are considering.
The honest employer question is narrower than either version. You probably have one or two people who cannot easily take direct deposit, or you are printing checks you would rather not print. A card might solve that. Whether it does depends on the fee schedule of the specific program, and on a federal rule that quietly constrains the whole idea: you cannot require anyone to take one.
This guide covers what a payroll card is, how it works, and the pros and cons assessed rather than listed. It then turns to the fee schedule to demand before signing, the compulsory use rule and what your state adds, the cost math against direct deposit and checks for a small team, and a five-question test for whether to offer cards at all.
Whichever methods you offer, keep each employee's signed pay-method election with their employee records; keeping those records and signatures in one place is part of what I built FirstHR for. This is general information rather than legal advice, and state wage payment law varies considerably.
The Short Answer
Payroll cards let employees without a bank account receive wages electronically on payday, save employers the cost of printing checks, and speed up onboarding. The main drawback is fees, which can reduce what an employee actually receives. Employers cannot require them: federal law demands at least one genuine alternative payment method.
The practical filter: if your team already takes direct deposit without complaint, you do not need this. If you are issuing a meaningful number of paper checks, particularly to hourly or seasonal staff, it is worth pricing out.
What a Payroll Card Is
A payroll card is a prepaid debit card that an employer loads with an employee's net pay each period. It is not a bank account in the usual sense, and it is not a credit card. It is a way of delivering wages to someone without moving them through a personal checking account.
Two things follow from that definition and are worth holding onto. The card is a regulated financial product rather than a company perk, which means the rules governing it come from banking law rather than from your handbook. And it is optional by design, which shapes everything about how you can present it.
How Payroll Cards Work
A payroll card works much like direct deposit from your side of the process: you contract with a provider, the employee opts in, and on payday the net pay goes onto the card. It is simpler mechanically than the regulatory context suggests.
| Step | What happens | Who does it |
|---|---|---|
| Set up the program | Contract with a payroll card provider, often through your payroll system | Employer |
| Offer the option | Present the card alongside other payment methods, with full fee disclosures | Employer |
| Employee chooses | The employee opts in voluntarily and receives a card | Employee |
| Payday | Net pay is loaded onto the card instead of sent to a bank account or printed | Employer, through payroll |
| Access | Purchases anywhere the network is accepted, ATM withdrawals, and usually transfers out | Employee |
| Pay statement | The employee still receives a pay stub showing gross, deductions, and net | Employer |
The last row is a compliance point people forget. The Department of Labor notes that the Fair Labor Standards Act does not require pay stubs, but where your state law does, switching someone to a card does not remove that obligation. If the card provider does not supply a pay stub, you still have to.
The Pros, Honestly Assessed
The advantages are real but unevenly distributed. Some of them benefit the employee, some benefit you, and one commonly claimed benefit is weaker than it looks.
| Claimed benefit | Who it actually helps | How strong is it? |
|---|---|---|
| Pays employees without a bank account | Employee | Strong. This is the core reason the product exists |
| Avoids check-cashing fees | Employee | Strong. A check casher takes a percentage of the face value |
| Funds available on payday | Employee | Strong. No deposit hold, no trip to cash a check |
| Eliminates check printing and distribution | Employer | Real, and proportional to how many checks you issue |
| Faster onboarding, no bank details needed | Employer | Genuine for high-turnover hourly hiring |
| No lost or stale-dated checks to reissue | Employer | Small but persistent administrative relief |
| Cheaper than paper checks | Employer | Depends entirely on volume. At small scale, marginal |
| Improves financial inclusion | Employee, in theory | Weak. A card is not a bank account and builds no credit history |
The last row deserves a note because it appears in a lot of vendor material. A payroll card does deliver wages electronically, but it does not establish a banking relationship, and the CFPB notes that prepaid cards do not help build a credit history.
Framing a payroll card as a step toward financial inclusion oversells it. Framing it as a better alternative to check cashing is accurate.
The Cons Nobody Leads With
Vendor guides list the drawbacks in a short section near the bottom. Here they are with the weight they actually deserve, because these are the ones that generate complaints.
That last con is the reputational one and it is entirely within your control. A card presented as an option, with the fees explained honestly and the alternatives genuinely available, is a benefit. The same card presented as the default that everyone is quietly steered toward is a grievance waiting to surface.
The Fee Schedule
This is the section that determines whether a specific program is good or bad, and it is the one to work through before you talk about anything else.
The practical test I would apply: read the fee schedule as though you were the employee earning the least on your team, living where they live, and using the card the way they would. If any line item would irritate you in that position, it will irritate them, and you will hear about it.
The Rule You Cannot Break
You cannot make a payroll card the only way an employee can be paid. Everything else in this article is a judgment call, but this part is not, and it is the most important thing to understand before offering a card program.
How real is this in practice? Real enough that the federally required disclosure says so out loud. Under 12 CFR 1005.18, the short-form disclosure a provider gives an employee before they choose a payroll card has to carry this clause, or one substantially similar: "You do not have to accept this payroll card. Ask your employer about other ways to receive your wages."
The regulation allows one substitute, and it makes the same point: a statement that the employee has several options, a list of them, and a direction to tell the employer which one they choose. Either way, the regulation writes the escape hatch into the sales document, which is a good indication of how seriously the point is taken.
Your employees will read that line whether or not you mention it, so it is better to have said it yourself first.
A second point catches employers who think they have complied: offering a choice between two electronic methods only is not always enough. Some states take the position that because both direct deposit and payroll cards require voluntary consent, an employer offering both must still provide a third option.
Illinois is one of those states. The Illinois Department of Labor states that because payment by payroll card or direct deposit must be voluntary, an employer offering either or both must also offer payment by cash or check. Check your state before assuming that direct deposit plus a card satisfies the requirement.
What Your State Adds
Federal law sets a floor. State wage payment law is where the specific obligations live, and it varies enough that a national summary is only useful as a checklist of what to look up.
| What to check in your state | Why it matters | Typical requirement |
|---|---|---|
| Whether a paper check must remain available | Determines if direct deposit plus a card is a lawful set of options | Varies by state, and some require the check option regardless |
| Written consent requirements | Some states require signed, informed, voluntary authorization before enrollment | Written and voluntary, revocable at any time |
| Free withdrawal per pay period | Lets employees reach their full pay without a fee | At least one free withdrawal of the full net wages |
| Fee disclosure obligations | Some states add their own notice to the federal forms | Written disclosure of all fees before the employee opts in |
| Prohibited fee types | Several states ban specific charges outright | Participation fees, first replacement card, sometimes inactivity |
| Right to revoke | Employees can usually switch back at any time | Revocable, with the employer providing an alternative promptly |
| Wage statement requirements | The card does not remove the pay stub obligation | Itemized statement each pay period regardless of method |
Two practical notes. The rule that applies is the one where the employee works, not where your business is registered, so a distributed team may have several sets of requirements. And where federal and state rules conflict, the one more favorable to the employee generally governs, which is a useful default assumption when you are unsure.
Card vs Direct Deposit vs Check
Three ways to deliver net pay, and they are not competing for the same employee. Each one is the right answer for a different situation.
The framing that helps most: a payroll card competes with a paper check, not with direct deposit. Someone who has a bank account and takes direct deposit has no reason to switch to a card, and you have no reason to want them to.
The card exists for the person who would otherwise be handed a piece of paper and pay someone else a percentage to turn it into money.
That percentage is not hypothetical, and in some states it is capped by regulation. New York's Department of Financial Services caps a licensed check casher at 2.2 percent of the check, or $1 if that is greater, and at 1.5 percent for public assistance checks. Caps like that are set state by state, so what a paycheck costs to cash depends on where the employee lives.
Seeing the card as a check replacement also resolves most of the internal debate. You are not choosing a payment method for your company. You are deciding whether to add a third option for a specific group of people, and the size of that group determines whether it is worth doing.
The Cost Math for a Small Team
Every vendor page tells you cards save money versus checks. That is true and it is also incomplete, because the saving scales with check volume and most small businesses do not have much volume.
What that worksheet usually shows is not that cards are bad. It is that the cost argument is weak at small scale and the employee-benefit argument is strong. If you are doing this to save money on three checks a cycle, the numbers will disappoint you. If you are doing it because three people are paying to cash their paychecks, that is a real problem you can solve.
Be honest with yourself about which motivation you have, because it changes how you present it. A cost-saving initiative presented as an employee benefit gets seen through quickly.
Five Questions Before You Offer Them
Work through these in order. Any stop signal means the answer today is probably no, and that is a legitimate outcome rather than a failure.
The fifth question is the one to be most honest about. A card program that only works financially if most people choose the card will create pressure, whether or not you intend it. Design for the scenario where two people opt in and everyone else does not, and if that scenario does not work, the program does not work.
If You Have Unbanked Employees
This is the situation the whole product exists for, so it is worth treating concretely rather than abstractly. Suppose two or three people on your team have no bank account.
According to the FDIC National Survey of Unbanked and Underbanked Households (2023), 4.2 percent of US households were unbanked, about 5.6 million of them, and a further 14.2 percent were underbanked, meaning they hold an account but also used a nonbank service such as check cashing in the past year.
Applied to a twenty-person company, those household rates suggest roughly one unbanked employee and two or three underbanked ones, so the group a card is meant for is usually small.
You have three reasonable options and a card is only one of them. The steps below start with a question, then take the options in the order I would try them.
The second step is the one nobody in the vendor ecosystem will suggest, for obvious reasons. It is frequently the best answer, it costs nothing, and it leaves the employee with something that outlasts their employment with you.
Doing It Properly
If you decide to go ahead, there are eight steps, and most of the work is in the presentation rather than the setup.
The last step is small and prevents the most common bad story about payroll cards, which is a former employee discovering months later that a small balance was consumed by fees. Adding one line to your offboarding checklist covers it.
The fifth step is the one that has to exist on paper. A consent that only lived in a conversation is indistinguishable, a year later, from an employee who was enrolled by default and never objected. Put the options, the fee schedule you were quoted, and the choice on one page, and keep the signed copy. Fill in the fee lines from the provider's written schedule before the employee sees the form, not after.
Where Employers Get This Wrong
Six patterns, and the first two are the ones with legal exposure attached.
The default-enrollment failure usually comes from good intentions. An employer decides the card is better for people, so they enroll everyone and let them opt out. Where state law requires affirmative consent, that is not a choice in the sense the rules require, and it is also how a helpful program becomes the thing people complain about.
Before you decide, do three things: count the people this would actually help, get the full fee schedule in writing, and check which alternatives your state requires you to keep available. If all three come out well, a card is worth pricing out. If not, a low-barrier bank account or a paper check is a perfectly good answer.
Frequently Asked Questions
What are the pros and cons of payroll cards?
The main advantage is that employees without a bank account get their wages on payday electronically, with no check to cash and no check-cashing fee. Employers save the cost and administration of printing and distributing paper checks, and onboarding is faster because there is no bank account to set up. The main disadvantage is fees: ATM withdrawals, balance inquiries, inactivity, and card replacement can all cost the employee money to access their own wages. On the employer side, some programs bill a monthly fee for each enrolled employee, while others charge the employer nothing.
Can an employer require employees to use a payroll card?
No. Regulation E, which implements the federal Electronic Fund Transfer Act, has a compulsory use provision: an employer cannot require employees to receive wages by electronic transfer to an account at a particular financial institution. The Consumer Financial Protection Bureau reads that as barring an employer from making its chosen payroll card the only way employees get paid. A card can be one option on the menu, as long as at least one genuine alternative exists. State law decides which alternatives count, and in some states a paper check has to stay available even when you offer direct deposit too.
What are the disadvantages of a payroll card for employees?
Fees are the central issue. Depending on the program, an employee may pay for out-of-network ATM withdrawals, balance inquiries, monthly maintenance, card replacement, inactivity, or declined transactions. Those charges reduce what they actually receive from wages they have already earned. Cards can also be harder to use for rent or bills that require a bank transfer, they usually do not build a banking relationship or credit history, and a card left inactive after someone leaves can quietly drain a remaining balance through inactivity fees.
How do payroll cards work?
The employer contracts with a payroll card provider, and each participating employee receives a reloadable prepaid card. On each payday, instead of sending funds to a personal bank account or printing a check, the employer loads the employee's net pay onto their card. The employee can then use the card for purchases anywhere the network is accepted, withdraw cash at ATMs, or in most programs transfer funds elsewhere. Funds are available on payday, the same as direct deposit, with no check to deposit or cash first.
Do payroll cards have consumer protections?
Yes. Payroll card accounts fall under the Electronic Fund Transfer Act and Regulation E, and the CFPB's prepaid accounts rule, effective April 1, 2019, added tailored protections for them. Providers must give short-form and long-form fee disclosures before an employee chooses the card, limit liability for unauthorized transactions when reported promptly, provide error resolution procedures, and make account information available. The short-form disclosure also has to tell the employee they do not have to accept the card, using a set clause or one substantially similar to it: you do not have to accept this payroll card, ask your employer about other ways to receive your wages.
Are payroll card fees legal?
Fees are permitted but constrained. The Fair Labor Standards Act regulation at 29 CFR 531.35 requires wages to be paid free and clear, which means card fees cannot leave an employee with less than the applicable minimum wage or reduce overtime pay that is owed. Many states add their own limits, and a common pattern is at least one free withdrawal of the full net wages each pay period, free balance checks, and a written list of all fees before the employee enrolls. Several states also ban particular charges outright, such as participation fees and charges for a first replacement card, so check your state's rules before you choose a program.
Are payroll cards worth it for a small business?
It depends almost entirely on how many paper checks you are currently issuing and whether you have unbanked employees. If everyone already takes direct deposit without complaint, a card program adds cost and administration for no benefit. If you are printing a meaningful number of checks each cycle, especially for a high-turnover hourly workforce, the savings and the speed become real. At three or four checks per cycle the financial case is thin, and the honest reason to do it is employee convenience rather than cost.
How common are payroll cards?
Uncommon as a share of all wage payments. PayrollOrg's 2025 Getting Paid in America survey found 92.7 percent of respondents paid by direct deposit, 3.3 percent by paper check, and 0.6 percent by payroll card. That is not an argument against cards, because their value is concentrated in a specific population rather than spread across the workforce. The FDIC's 2023 National Survey of Unbanked and Underbanked Households puts 4.2 percent of US households, about 5.6 million, in the unbanked group with no account at all, and another 14.2 percent in the underbanked group. Those are the people a card is built for, and in a small company they are usually one or two individuals rather than a segment. Count yours before pricing a program.
What happens to a payroll card when an employee leaves?
The card typically stays with the former employee and any remaining balance stays accessible, but this is exactly where problems arise. If the card carries an inactivity fee, a small forgotten balance can be eroded over months. Before an employee's last day, ask them to withdraw whatever is left, show them how to close the account if they want to, and confirm with your provider what happens to a dormant card. Putting this on your offboarding checklist prevents a former employee discovering the issue a year later.
What must you disclose to employees about payroll cards?
At minimum, the complete fee schedule in writing, the fact that the card is optional, and what the alternatives are. Federal rules require the card provider to deliver short-form and long-form disclosures before an employee chooses the card, and many states impose additional written notice and consent requirements. Practically, go beyond the minimum: walk through where the free ATMs are, how to check a balance for free, and what happens to the card after they leave. Informed choice is both the legal standard and the thing that prevents resentment.