ADVERTISEMENT

Can an employer pay salary through a payroll card?

A payroll card has benefits, but direct deposit might be best

By  |  Published: March 25, 2017

Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

Ask a question.

'Credit Smart' archive

Question

Dear Credit Smart,
Can a company pay salary through a credit card? – Sawdick

 

Answer

Dear Sawdick,
I believe you may be asking about a reloadable debit card issued by an employer, not a credit card. These types of cards are also known as payroll cards, and can be used for purchases the same as a debit or credit card. These cards are very popular with some employers, especially for those employees who do not have access to a checking or savings account.

These types of cards function very much like direct deposit because you have immediate access to your net payroll funds each pay period. However, there are some of the pros and cons you should consider:

  • You must be given the opportunity to access the full amount of those funds once each pay period for free.
  • You should receive a pay stub each period outlining your gross payroll, taxes paid and other deductions, as well as your net pay for the period.
  • One problem with payroll cards is that an ATM is unable to give exact change, so accessing all your funds may be an issue. An ATM is generally the easiest way to access these funds, but should not be the only way.
  • You should also research what happens if the card is lost or stolen. It’s important to find out how that is handled and how quickly it could be resolved.
  • One advantage to these cards is that they are generally less expensive than using a check cashing service or purchasing money orders to pay bills. But there may be fees for out-of-network ATM use, overdrafts and inactivity.
  • If you choose to accept a card, you should be given a fee schedule outlining these costs. Be sure to review this schedule and any other documentation you receive about the card carefully.

A wiser option: direct deposit
A payroll card can be very beneficial for people without a banking relationship. However, if you do have a checking or savings account, I would suggest you ask for direct deposit instead. If you don’t, now might be the time to open one.

  • With an account through a bank or credit union, you can pay your bills and easily keep track of your spending.
  • Tying a savings account to a checking account allows for ease of putting away extra money.
  • You can even split your paycheck between accounts if your employer offers direct deposit. If not, it is generally easy to move money between accounts.

You need to research all of your banking options as well as try to evaluate how you will use a card if that is what you choose. Federal law mandates that you must be given at least one other option if you do not want a payroll card. This does not mean that your employer must offer direct deposit as well, only that another option must be available. You want to choose the option that allows you to keep as much of your hard-earned money as possible.

Remember to always use your credit smarts!

See related: It pays to know these 5 things about payroll cards

Meet CreditCards.com's reader Q&A experts

Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.

ADVERTISEMENT
ADVERTISEMENT

Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Updated: 08-20-2017

ADVERTISEMENT


Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


ADVERTISEMENT