Credit Smart

Can an employer pay salary through a payroll card?


Receiving salary through a payroll card could help initiate a banking relationship, but if you already have a checking or savings account, direct deposit might offer better perks.

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



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

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