What Is a Payroll Card?

An employee smiles as she receives her wages instantly through a payroll card

Payroll cards have been gaining popularity in recent years, and they're now becoming mainstream. They offer a number of advantages for both employers and employees, such as cutting administrative costs and providing timely access to wages. Here's what to consider in deciding whether to offer payroll cards at your organization.

If you're looking for a way to improve the lives of your employees and reduce turnover, the solution may be found in your payroll department.

There is a growing trend — and growing demand — for employees to receive their wages through a payroll card. Here's how this system works and how to tell whether it could make sense for your business.

What are payroll cards?

A payroll card is a type of prepaid debit card for your employees. On payday, your organization would deposit an employee's wages on their card. The employee can then use the card to make cash withdrawals from ATMs and to make purchases, just like a debit card from a bank account. Depending on the program, employees could also use their account to pay bills and shop online.

If you set up payroll cards, they should simply be an option for employees, not a requirement. Legally, you must offer at least one other way to provide wages, either through direct deposit or a paper check.

What problems do payroll cards solve?

Payroll cards provide employees an alternative way to collect their wages, in addition to paper checks and direct deposit. While direct deposit is convenient for workers with bank accounts, millions of Americans are unbanked. The FDIC recently estimated that in 2021, over 6 million American households did not have access to a bank account.

For workers without a checking account, direct deposit is not an option. To collect their wages, they need to get a paper check and then use a check-cashing service to get their money. It takes them longer to get paid, plus they lose money on fees. While they're stuck waiting on the payment, they could end up missing deadlines for their rent/mortgage, utilities, insurance or other bills, leading to more fees and penalties.

Additionally, there are millions of other Americans who are underbanked, which means that, although they have a bank account, they still use other nontraditional sources of money like payday loans. These employees also might end up using paper checks.

Paper checks can be more expensive for organizations because the business needs to pay for the checks themselves, as well as postage, and the time for an employee to put them together. Payroll cards offer a more efficient and cost-effective solution for both sides: Employers can avoid the hassle of distributing paper checks, and employees can rest assured that they will receive their money instantly on payday.

What other benefits do payroll cards offer?

In addition to reducing costs tied to paper checks, payroll cards offer many other conveniences to employees. For example, through a payroll card system, each employee will receive an account where they can check their balances and transfer money to others. Your organization could choose to set up the program so that it connects with Apple Pay®, Google Pay and Samsung Pay®. That way, employees could make mobile payments with their smartphones.

Another benefit is that payroll cards offer faster and more flexible payment options for employees. Rather than only paying them every two weeks or monthly, you could give your workforce the option to request early access to their earned pay based on their hours worked. Paper checks don't offer this flexibility.

Many workers have gotten used to instant pay from businesses like Uber and DoorDash, so it's become something they appreciate and increasingly expect from their jobs. Thanks to this convenience, payroll cards are shaping up as an attractive alternative even to checking accounts, and they can give your unbanked and underbanked employees many of the same benefits of an actual bank account.

All of these benefits underscore the connection between payroll cards and financial health. With faster access to their earned wages available via digital savings wallets and payroll cards, individuals can potentially enjoy a great sense of financial wellness. These are the tools that younger generations are seeking out as paper checks and brick-and-mortar banks increasingly become viewed as things of the past.

How has demand changed recently?

The global health crisis highlighted the need for more digital payroll solutions. With many employees from finance departments working at home during quarantine, it became even more complicated to prepare, approve and send out paper checks. Not to mention, employees may have felt uncomfortable dealing with a paper check and envelope touched by several strangers.

People have also shifted away from spending physical cash in recent years. This adjustment was most noticeable in low-income workers who make less than $25,000. According to PaymentsSource's Future of Money report, individuals in this group moved from using cash as their primary means of payment to using debit cards in 2020. Some stores have even enacted policies of only accepting payment by cards. Payroll cards give employees the ability to spend the way they want, wherever they want.

Technology improvements have also increased demand for online shopping and mobile payment capabilities. Modern payroll cards support contactless payments, where individuals can purchase goods simply by pointing their mobile device near a payment terminal. No currency needs to be exchanged, and no contact needs to be made. Especially in the wake of the global health crisis, this technology can help both customers and employees feel safer.

Payroll cards fit in with each of these new developments. Accordingly, it's clear that the demand for more flexible payment options has been growing steadily and will likely continue to do so.

What types of employees prefer payroll cards?

While payroll cards could be convenient for any type of employee, there are a couple of key demographics that especially appreciate having this option.

Gen Z and millennial workers are leading the charge here. This is largely because younger workers are more likely to be unbanked or underbanked. In fact, 43% of Gen Z and 20% of millennials reported paying $5 to cash a paper check, versus just 9% of baby boomers. In addition, younger workers are used to digital technology. Generation Z is the first group that grew up using smartphones, and payroll cards can give them a mobile payment option that fits their preferences and lifestyle.

Payroll cards can also benefit minority employees, who are more likely to face issues with the traditional banking system. Approximately 13% of Black individuals and 10% of Hispanic individuals are unbanked, versus just 3% of white individuals, according to the Federal Reserve. By offering payroll cards as an option to these workers, you can help them avoid fees and other issues related to being unbanked, making this a worthwhile DE&I initiative as well.

What organizations could benefit from offering payroll cards?

Payroll cards can generally be a valuable addition to most payroll programs, but there are particular situations where they can have a significant impact. First, consider the demographics of your workforce. Do they fit the types of workers who are typically unbanked or underbanked? Are the majority of your employees younger, lower income or minorities?

If you work in retail, restaurants or another type of business with more staggered work schedules, and you think your employees might work gig economy jobs on the side, you may also want to prioritize payroll cards. Gig economy workers have seen the value of on-demand pay and would likely be pleased to have it at your organization too.

Lastly, if you're in a more tech-savvy industry, offering payroll cards could be a way to show your staff that you're constantly thinking of ways to improve benefits for today's modern workforce. With so many employees working remotely in response to the global health crisis, organizations can potentially see an increase in electronic participation through direct deposit and payroll cards.

"Employers who want to gain an advantage retaining and attracting talent have implemented industry leading payment solutions like paycards," says George Mavrantzas, VP of Strategy & Thought Leadership at ADP. "These solutions often feature rich financial wellness tools that their diverse employee populations are asking for."

If you're unsure how this would be received at your business, you could poll your employees to see whether they would like this new system. They may appreciate that you're actively considering how you can improve their financial well-being and be more inclusive with your payment options.

Learn more

Move towards paperless pay with flexible, cost-effective payments that help financially empower your employees. Learn about paycard options from ADP.