Employer FAQs

Here are some commonly asked questions about payroll cards.

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Answer: A paycard is a reloadable prepaid (i.e., stored value) card issued to an employee through a national or regional bank, credit union, or savings and loan association on behalf of his or her employer for the receipt of wages and other compensation. Paycards also are referred to as "payroll cards" and "payroll debit cards."

Each payday, the paycard account is electronically loaded with the full amount of the employee's net pay. The employee can then use the card to withdraw cash from a bank teller or ATM, make point-of-sale purchases, receive cash back from point-of-sale transactions, make purchases by mail, phone or Internet and pay bills online or in person. Some programs offer additional features as well.

Answer: A branded paycard is one bearing the logo of a major payment brand such as Visa, MasterCard or Discover. Branded cards are widely accepted and offer employees greater flexibility and utility. These cards can be used to make both signature- and PIN-based purchases at merchant locations worldwide. They also can be used to pay bills over the Internet or by telephone, and to make ATM withdrawals. Employees can use a branded card to obtain their full wages from the teller at any financial institution that is a member of the payment brand. Today, the vast majority of paycards are branded.

Unbranded paycards can be used for cash withdrawals at ATM machines and for transactions at any establishment that has a PIN-pad device, such as purchases at retail outlets, grocery stores and convenience stores. Unbranded paycards cannot be used to make purchases or pay bills online or over the telephone.

Both branded and unbranded cards can be used to obtain cash back at participating merchants if the transaction is a PIN debit transaction.

Answer: There are many reasons why employers decide to offer paycards to their employees. For example, electronic wage payment is more secure, more reliable and more convenient than paper paychecks. Moreover, in many cases, electronic wage payment is less expensive for employees than paper paychecks. This is particularly true for unbanked and underbanked workers who often rely on costly alternative financial services like check cashing establishments to access their wages and then purchase money orders to pay their bills.

Although direct deposit offers a solution for many workers, a surprisingly large number of employees are unable to participate in direct deposit because they have little or no access to traditional banking services. Offering paycards as a complement to direct deposit allows employers to provide the benefits of electronic wage payment to all of their employees even those who do not have a personal bank account.

Employers also benefit directly from paying their employees electronically. It takes a significant amount of time and resources to prepare, process and distribute paper paychecks. Even then there is no guarantee that employees will receive their wages on payday. Payroll checks can get lost in the mail and delivery can be delayed due to severe weather conditions. Electronic pay methods allow employers to save time and money while ensuring that all of their employees receive their wages promptly on payday.

Finally, electronic wage payment is environmentally friendly. As such, many employers offer paycards as part of their sustainability initiatives.
Answer: Paycards bring the benefits of electronic wage payment to employees who otherwise are unable to participate in direct deposit because they have little or no access to traditional banking services. These benefits include:

*Fast and easy access to wages on payday even when the employee is away from the workplace (e.g., working remotely, on vacation, out ill, etc.).

*Prompt delivery of wages even during extreme weather conditions and natural disasters that often impede the delivery of paper checks using ground or air transportation.

*Time savings and increased efficiency as employees no longer need to wait in line to deposit or cash their paychecks, wait for their paychecks to clear, or spend time purchasing money orders to pay their bills.

*Cost savings as employees are able to access their wages from the card at numerous locations, thereby eliminating reliance on expensive check cashing services.

*Increased security as employees no longer need to carry around large amounts of cash.

*Increased convenience as paycards allow employees to make purchases by mail, phone or Internet, and to access cash from a bank teller, an ATM or through cash back from point-of-sale transactions.

*Financial empowerment as paycards offer unbanked employees with a pathway into the financial mainstream.

Paycards also offer benefits to employees who have bank accounts. Many banked employees use split deposits to help them manage their finances. For example, a banked employee could have a portion of his or her wages directly deposited into a savings account each pay period while having the remaining funds credited to a paycard account. The amount credited to the paycard account may represent the employee’s spending money for the period, while the amount directly deposited allows the employee to save for future needs.

Finally, many millennials enjoy the convenience of prepaid cards over other payment methods.

Answer: Branded paycards can be used anywhere that the payment brand (e.g., Visa, MasterCard or Discover) is accepted. This includes millions of stores, restaurants and other businesses worldwide.
Branded paycards also can be used to obtain cash back from point-of-sale purchases and at ATMs. In addition, employees can obtain their full wages in cash from the teller at any financial institution that is a member of the payment brand (not just at the financial institution that issued the card). For the major payment brands, this means tens of thousands of bank branches nationwide.

Unbranded paycards can be used wherever the merchant offers a swipe pad with PIN entry, such as grocery stores, discount stores, drug stores, and thousands of others. Employees also can use their cards to obtain cash back from point-of-sale purchases and at ATMs.

If the paycard program offers convenience checks, employees can fill out the checks for the amount of their net wages and cash them at specified locations.
Answer: No. A credit check is not required. An employee’s credit history, whether good or bad, does not affect his or her ability to receive wages on a paycard. The card provider may need to verify the employee’s identity, however, using certain identifying information such as name, address, date of birth and personal identification number.
Answer: No. The account that holds available paycard funds is not an interest-bearing account, so no interest is earned by the employer or the employee. Some programs do offer a "savings purse" feature which allows employees to transfer funds into a separate account that earns interest.
Answer: An employer may use ACH to reverse the deposit to the card account in accordance with the NACHA rules. However, any reversal must comply with applicable state wage and hour laws. Some states require employee authorization or that other conditions be satisfied before an employer may recoup an overpayment of wages.
Answer: The answer to this question will depend on the applicable state wage and hour law. To date, 29 states have statutes and/or regulations expressly addressing payroll cards. In 7 other states the wage and hour enforcement agency has published guidance expressly addressing payroll cards. Some of these states allow employers to eliminate paper paychecks if specified conditions are met. (See APA Visa® Paycard Portal, For Employers, Compliance and Regulation).

Answer: Under federal Regulation E, employers must always offer their employees at least one payment option in addition to paycards. The state wage and hour laws determine what alternative methods must be offered. In states that allow employers to eliminate paper paychecks, direct deposit typically is required as an alternative to paycards. This allows employees to select the financial institution into which their wages are deposited, as is required by federal law and the laws in some states. In addition, a few states require employers who offer payroll cards to also offer both direct deposit and a paper paycheck to their employees.
Answer: No. Employers do not have access to information about how or where their employees use their paycards. A federal law known as the Gramm-Leach-Bliley Act (GLBA) requires financial institutions to protect the security and confidentiality of their customers’ nonpublic personal information.

All paycard programs are issued through financial institutions. Paycard providers that are not themselves considered financial institutions are agents of the financial institutions with whom they have contracted. As such, they will be required to comply with the GLBA in their agreement with the financial institution.

For more information, employers should review the privacy policy for their particular paycard program.
Answer: Employers should ask this question when they are interviewing paycard providers. The wage and hour laws in most states require that employers provide their employees with full and free access to their wages each pay period without cost. As such, all programs should provide employees with at least one means of accessing their full net wages from the card account each pay period and many offer multiple methods of cash access.

One advantage of branded paycards is that they allow full and free cash access at least once each pay period from the teller at any financial institution that is a member of the payment brand.

Remember, the terms of the service agreement with the paycard provider are negotiable. Employers should not hesitate to negotiate with the provider over fees.
Answer: Employees who receive their wages on a payroll card are able to check their account balance in many different ways. For example, they may call a toll-free customer service number (automated system and/or live representative), access the information over a secure internet or intranet, and perform balance inquiries at an ATM. Many programs also offer text alerts and additional means of helping employees keep track of their account balance.

Fees vary from program to program but there is always at least one way for employees to check their account balances without cost.
Answer: An employee who loses his or her paycard should call customer service and report the card as lost or stolen. The card will be deactivated and a new card issued with the full remaining card value. The exact procedures will vary depending on the particular paycard program. Some employers maintain a stock of non-personalized instant issue cards on the premises that can be provided to employees immediately upon report of a lost or stolen card. If instant issue cards are not available, a replacement card will be mailed to the employee.

Federal Regulation E limits cardholder liability in the event that a lost or stolen card is fraudulently used, provided the employee reports the card as being lost or stolen within specified time periods. If a lost or stolen card is branded, the brand’s zero liability policy also will shield the employee from losses arising from many fraudulent uses.

Fees for replacement cards are subject to negotiation between the employer and the payroll card provider, and vary from program to program. Some states limit the fees that may be charged for replacement cards.
Answer: No. In fact, overdrafts on paycard accounts are uncommon. This is because most paycard transactions require preauthorization to confirm that funds are available. Therefore, in most instances an employee should only be able to spend funds that have been credited to his or her paycard account.

That being said, there are situations where delays in transaction processing could result in an overdraft if employees do not monitor their spending. For example, some retailers still make card imprints or obtain payment authorization on paper for later processing. A paycard can be overdrawn if an employee makes a subsequent purchase exceeding his or her balance before the offline transaction is processed.

If an employee accidentally spends more than is in his or her paycard account, the account will show a negative balance until the next deposit covers the deficit. The issuer should not charge a fee for this. Employers can help minimize these situations by providing appropriate training to their employees, emphasizing the importance of keeping track of the balance in the paycard account.

Answer: Yes, employees will have access to information regarding transactions to and from their paycard accounts. Federal Regulation E requires that the financial institution issuing the card provide employee-cardholders with account information in one of two ways. First, the institution may provide employees with periodic statements showing information about each transfer that was credited or debited to the employee’s account. If this option is used, a periodic statement must be sent for each monthly cycle in which an electronic fund transfer has occurred, and at least quarterly if no transfer has occurred.

Alternatively, the financial institution may make all of the following information available to employee-cardholders: (1) the employee’s account balance, through a readily available telephone line; (2) an electronic history of the account transactions, such as through an Internet website, that covers at least 60 days preceding the date the employee electronically accesses the account; and (3) a written history of account transactions provided promptly in response to the employee’s oral or written request that covers transactions for at least 60 days preceding the date on which the institution received the employee’s request. Effective April 1, 2019, electronic transaction histories must cover at least 12 months preceding the date the employee electronically accesses the account and written transaction histories must cover at least 24 months preceding the date on which the institution received the employee’s request.

Regardless of which alternative the financial institution selects, all programs provide employees with one or more ways of checking their account balances without cost. This is required by the wage payment statutes in many states.

Answer: Yes. Most states require that employers provide their employees with a statement of earnings and/or deductions (i.e., a “pay stub”) each pay period regardless of the method used to pay wages. This is separate from the transaction histories provided by the issuing financial institution.

Employers wishing to distribute paystubs electronically should take into account applicable state law requirements.
Answer: Paycards carry a number of important consumer protections. For example, Regulation E limits cardholder liability when a lost or stolen card is used fraudulently so long as the cardholder reports the card as being lost or stolen within specified time periods. It also requires that dispute resolution procedures be available to cardholders and that all terms, conditions and fees be clearly disclosed. This permits payroll cardholders to easily understand how to use the card to their best advantage. In addition, although overdrafts on paycards are uncommon, the Prepaid Rule will regulate overdraft credit features that may be offered in conjunction with prepaid accounts.

Branded payroll cards provide the additional consumer protections of the brand they carry. These protections include "zero liability" for lost or stolen cards used for unauthorized purchases and additional dispute rights.

Finally, the state wage and hour laws provide additional protections such as requiring full and free access to wages and timely wage payment.

Answer: Most, if not all, paycards are issued by federally insured financial institutions and, therefore, the funds in the account are insured in the event of a bank failure.

In November 2008, the FDIC issued an opinion letter declaring that the funds underlying stored value cards will be treated as insurable deposits so long as they are placed at an insured depository institution. The FDIC also opined that the holder of the account (i.e., the employee) will be treated as the owner of the funds if the FDIC's standard requirements for pass through insurance are satisfied. These rules require that:

*The agency or custodial relationship be disclosed in the account records of the insured depository institution;

*The identities and interests of the actual owners be disclosed in the records of the depository institution or the records maintained by the custodian or other party; and

*The deposits must actually be owned by the named owners and not by the custodian.

If these requirements are satisfied, the employee will be the insured owner of the funds and will be protected up to the maximum amount protected by law (currently $250,000). If not, the custodian of the account or other named account holder will be treated as the owner.

Note that the National Credit Union Administration (NCUA) takes the position that cardholders are only entitled to pass-through insurance if they are a member of the credit union.
Answer: Yes. Method of wage payment does not impact whether an employee’s wages are subject to garnishment. An employer must comply with a court order directing it to withhold or “garnish” amounts from an employee’s wages for the payment of a debt. State and federal law regulate the amount of money that may be garnished from an individual’s wages and should be consulted for guidance.
Answer: This will depend on whether the employee’s paycard is portable, meaning that it accepts loads from sources other than the initial employer. If so, the employee will be able to keep and continue to use the card when the initial employment ends and will even be able to use the card’s routing and account numbers to sign up for direct deposit with subsequent employers. The employee also will be able to accept loads from other sources such as tax refunds.

If an employee’s card is not portable, the employee will be able to keep the card after the employment relationship ends and to use it to access the funds previously loaded onto the card by the initial employer. The employee will not be able to load funds from a new employer or from other sources, however.

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