As electronic payments become more common and the number of Americans without bank accounts rises, payroll cards have increased in popularity- especially among companies seeking to reduce payroll costs. But, if you are thinking of bringing payroll cards into your small business, make sure you choose your payroll card program wisely and that you are aware of the current legislation in your area.

cardWith a payroll debit card, the value of an employee’s wages is automatically loaded on to the card for each work period. The employee can then use the card to get cash at the bank, withdraw funds from an ATM, or make purchases. In other words, it works much the same way as any other debit card connected to a bank account. The difference is that no bank account is needed.

According to the research firm Aite Group, nearly $43 billion will be loaded onto these cards this year. That is double the amount reported in 2010. By 2017, Aite predicts that the total will reach $68.9 billion.

For the businesses that use them, payroll cards offer an easy way to reduce the cost of processing payroll and distributing paper checks. It also gives those workers who do not have a bank account a simple way to access their money.

There are drawbacks, however, especially for workers. Many payroll card programs come with exorbitant fees that can significantly cut into workers’ wages. This can have obvious, negative affects on employee moral. Some upset workers have even gone so far as to take the issue to court.

That said, if you are considering using a payroll debit card program in your small business, you should shop around for a program that doesn’t support an excessive fee structure, and you also need to be aware of both state and federal wage rules. The American Payroll Association and the National Consumer Law Center offer some helpful guidelines for employers. Here are a few important ones to pay attention to:

  • Employees must be able to access their full wages in cash at least once each pay period without fees. Free and clear access is required by the state wage and hour laws and is critical to the success of any payroll card program.

  • Employees must have a choice of wage payment method and be able to change it. Under federal law, employees may not be required to receive their wages on a payroll card and must have the choice of another payment method.

  • Employers should offer a payroll card that is widely accepted. The logo of a widely accepted payment brand (i.e., Visa, MasterCard or Discover) signals to employees that they can take their card to any bank that is a member of the payment brand and receive their full wages from the teller each pay period without fees.

  • Employees must be provided free and convenient access to account information. Employees need free access to account information to check their balance, spot unauthorized charges, monitor fees and manage their finances. They should not be charged a fee for responsible behavior, such as checking their balance using an automated telephone system.