How Payroll Debit Cards Work

April 23, 2021
manager giving credit card to waitress stock photo

Employees and employers often use multiple payment methods depending on what works best. The traditional methods are direct deposit and check payments. Recently, employers have turned to payroll debit cards, also known as pay cards, which come with several advantages and drawbacks. 

If you’re an employee who wants to understand the fundamentals of a pay card, this article is for you. We’ll discuss how the payroll debit card works and the ways it can benefit you.

What Is a Pay Card?

A payroll card is typically an electronic prepaid card that employers use to send money to employees. Usually, the pay card is loaded with employees’ payments every payday. Therefore, if your employer offers to pay you with a pay card, you agree to receive your payment as a direct deposit on the card. 

Instead of a physical paycheck, you get paid on a card that works like an ATM card; they typically have Visa or MasterCard logos. You can use the card to make purchases on cash apps that accept prepaid cards or withdraw cash from an ATM.

How It Works

Employers prefer pay cards because they are time efficient and curb the hassle of printing several paychecks. They employ this method in agreement or contract with a third-party company that issues the pay card and handles other back-end activities.

A typical printed check costs between $1 and $2, but once pay cards are loaded with funds—the payroll debit cards charge 20 cents, and the employer covers the cost. Furthermore, since every process is done electronically, there is immediate access to said funds. Therefore, both parties have flexibility.


The Unbanked

A 2019 report from the FDIC shows that about 7.1 million Americans are unbanked. However, they can receive wages and payments via prepaid debit cards. Recent studies found that $34 billion was disbursed to 4.6 million active prepaid cards. 

The number is expected to reach about $68.9 billion on 10.8 million cards. A payroll debit card is ideal for employees that are unbanked since they don’t have checking accounts. 

These individuals are unable to open checking accounts because they are listed in the ChexSystems. ChexSystems is a central bureau that handles the database of consumers who have mismanaged their checking accounts in the past.

  • Employers save more money with pay cards. Since they are reloadable, there is no need to purchase new cards every payday.
  • Pay cards mostly work like debit cards and are used the same way.
  • There are no monthly maintenance fees.
  • You don’t need to visit the bank as you can access money anywhere.


While pay cards do not have maintenance charges, there are other charges and fees that can add up for the employee. These include:

  • Activation fee
  • ATM withdrawal charges
  • Inactivity fees (if your card remains active for a certain period)
  • Purchase fee
  • Customer service fee
  • Cash reload fee
  • ATMs do not dispense money to the cent amounts; therefore, employees may not withdraw their real wages.

More Information

According to the Fair Labor Standards Act, employees should always have an option to receive their wages. Therefore, you may choose not to use a pay card. That said, employers cannot force employees to use pay cards. They must find or provide alternatives.

Additionally, based on information from a consumer Finance Protection Bureau Bulletin, pay cards must meet the Federal Reserve Regulation’s standard rules. This states that:

  • Employees must know of fees chargeable by a pay card.
  • Card issuers must provide the card’s transaction history upon request.
  • The employee’s liability for unauthorized card use remains limited.
  • Financial institutions must attend to a consumer’s report of errors if it is within a stipulated period.

The payroll card regulations make the method controversial, especially as employees may not withdraw their full pay.

Federal Pay Card Laws

Workers who receive their wages electronically are protected by the Electronic Funds Transfer Act (EFTA) and Regulation E. These laws state that employers are providing additional payment methods aside from pay cards. 

Also, employers are bound by the law to disclose terms, conditions, and fees that may apply. Besides, the Fair Labour Standard Act (FLSA) ensures the payment of the federal minimum wage. A pay card can, therefore, not reduce a worker’s pay below the minimum wage.

State Pay Card Laws

Alabama, Idaho, Indiana, Louisiana, North Carolina, New Mexico, Mississippi, Ohio, South Dakota, Wisconsin, Wyoming — no specific laws

Alaska — employers are to deposit funds based on employee’s authorization.

Arizona, Tennessee — employers can offer direct deposit to any financial institution. However, if employees don’t provide consent for direct deposit to their institution of choice, employers can pay without their consent.

Employees must be allowed a free withdrawal per payday. There must be full disclosure of pay card fees as well as employees’ earnings and withholdings.

Arkansas — no specific laws, but pay cards fit into the state’s requirements for direct deposit. In this case, payment methods are voluntary as employees can choose to opt-out. Also, it cannot be used as a condition of employment.

California — workers can use pay cards as long as there’s immediate access to full payment and voluntary deposit authorization.

Colorado — they must be accessible to the full amount at least once a pay period, or employees can use other payment options.

Connecticut — workers must authorize a pay card voluntarily. They must be allowed at least three free withdrawals per pay period. Any cost incurred as a result of the payroll card can be deducted from the wages.

D.C. — no specific laws, but informal advisories state that employees must receive disclosures and authorize deposits voluntarily.

Delaware — pay card systems must allow access to the full amount on regular paydays.

Georgia, Florida — pay debit cards must be payable and negotiable in cash, on-demand, and at some place of business within the state. The business name must appear on the card, and funds must be available for at least 30 days.

Hawaii — employers must provide payment options before employees choose. Employees can opt-out anytime and must have a free replacement card per year.

Illinois, Iowa, Nebraska — pay card is not a condition for employment. There must be voluntary consent from the employee.

Kansas — employers cannot retain an interest in wages. Employees are not liable for participation fees but are responsible for replacing their cards.

Kentucky — one free withdrawal per payday. Pay card accounts must be convertible to cash without discount.

Maine — employees must have access to full wages without costs or choose another means.

Maryland, Massachusetts — the employee must authorize, and employers must disclose fees.

Michigan — one withdrawal per day at no cost. Employers must disclose terms and conditions like fees and changes in terms.

Minnesota — written consent that cannot be a condition of employment. Employees can opt-out

Montana — employees must give voluntary consent and be able to withdraw full cash.

New Hampshire — employees can change payment methods without a time penalty.
Employers’ fees are not transferable to employees.

New Jersey — pay cards follow the same regulations as direct deposit.

New York, North Dakota, Pennsylvania — card must be from an FDIC issued institution with employees’ written consent.

Oklahoma — must be voluntary.

Oregon — employers can offer pay cards if they provide options that do not incur charges.

Rhode Island — employees’ authorized. One free withdrawal per payday and a balance check for free.

South Carolina — at least one free withdrawal per payday.

Texas — written disclosures by employers at least 60 days before the first transfer of funds.

Utah — immediate access to the full amount and deduction statements.

Vermont — cards must be federally insured, optional, and branded.

Virginia — pay cards are given to workers hired after January 1, 2010, without consent, especially if there is no designation for other payment options.

Washington — employees to provide alternatives if pay card has charges.

West Virginia — FDIC insured cards and no excessive charges.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.