Payroll Card (Pay Card)

A payroll card, also called a pay card, is a prepaid card an employer arranges to pay wages. Pay is loaded onto the card instead of arriving by direct deposit or paper check, as the CFPB explains.

A common misconception is that employers can make employees take one. They generally cannot, and state law adds its own rules, which vary. Check the rules where your employees work.

How Does a Payroll Card Work?

The employer or its payroll provider sets up a card account for the employee, and wages are transferred into it each pay period. The employee then spends or withdraws the money using the card.

Regulation E treats it as a payroll card account, with required disclosures, error resolution and limited liability. The updated prepaid account rules apply from April 1, 2019. See 12 CFR 1005.18.

Can an Employer Require a Payroll Card?

No. The CFPB says an employer cannot require employees to take wages on a payroll card and must offer at least one alternative, such as direct deposit to a bank account the employee chooses.

The required card disclosure must also state that the employee does not have to accept the card and should ask the employer about other ways to receive wages, under Regulation E.

States add detail. New York requires written consent at least seven business days before the card is issued, and Illinois requires a cash or check option in addition to direct deposit or a card.

What Fees and Access Rules Apply?

Regulation E requires a short form listing key fees, such as monthly, per-purchase, ATM and customer service fees, and a long form listing all fees. Employers should review both before offering a card.

Free access comes mostly from state law. New York says employees must be able to withdraw full wages with no fee and bars charging them for items such as point-of-sale transactions or account maintenance.

Illinois bars card programs that charge point-of-sale fees and requires that employees can obtain the full value of the card without discount. Employers with staff in several states need multi-state compliance tracking.

How Does a Payroll Card Compare With Direct Deposit?

Direct deposit sends wages to a bank account the employee picks. A payroll card sends them to an account the card program sets up, so the employee depends on that program's fee schedule and access points.

Insurance can differ too. The FDIC says prepaid card funds can be insured up to $250,000 when the card is eligible and registered with the issuer. Employees should ask the issuer whether theirs qualifies.

How Does HR Cloud Help With Payroll Cards?

HR Cloud's pages describe onboarding and payroll integrations, not card issuing. New hires can e-sign forms such as direct deposit forms through self-service onboarding, and HR Cloud connects with payroll systems such as ADP and Paylocity.

Whatever method an employee picks, keep the signed choice with their employee records. To see how onboarding forms are collected, request a demo.

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Frequently Asked Questions

Q: Can an employee switch back to direct deposit?

A: In New York, yes. An employee may withdraw consent at any time, and the employer must change the payment method within two pay periods. Check your state's rule.

Q: Can money on a payroll card expire?

A: Not in New York, where the state labor department says funds may not expire. Other states may differ, so confirm the rule where your employees work.

Q: Who is liable for unauthorized charges?

A: Regulation E gives payroll cardholders error resolution and limited liability protections. Employees should report unauthorized transactions to the card provider promptly.

Q: Can a card charge an inactivity fee?

A: Illinois allows inactivity fees only after one year of inactivity. Other states differ, so check yours and read the provider's fee schedule.

Q: What account history must the provider offer?

A: Regulation E lets providers meet the statement rule with a phone balance, an electronic history covering at least 12 months, and a written history covering at least 24 months on request.

Q: Who must give the card disclosures?

A: Regulation E puts that duty on the financial institution offering the account. Employers should still confirm the provider supplies them, because states such as New York also require written employer notice.