Would you like your paycheck in
paper or plastic?
It's not a revolution, but more employees are receiving
part or all of their pay on plastic stored-value cards. The cards
can be convenient for both employer and employee, but there are
concerns about fees and a lack of consumer protection.
Payroll cards aren't likely to replace direct deposit,
but they're popular with businesses that have a large number of
employees who don't have bank accounts, the so-called unbanked.
Additionally, a growing number of companies with large sales staffs
are using them to pay commissions, bonuses and other irregular payments.
A payroll card looks and acts like a debit card, but
instead of the money coming out of your checking account as you
use it, it comes out of a pooled account set up by the employer.
The account can be in the employer's name or a sub-account may be
set up in the name of the employee.
The cards, which can be used at ATMs and, often, at
point-of-sale terminals in supermarkets and other retail outlets,
sometimes have the Visa or MasterCard logo, which enables them to
be used just about anywhere. The cards are reloadable and are issued
by banks or by a third party administrator that uses a bank to hold
Matt Gillin is CEO at Ecount, a provider of electronic payment solutions,
that's seeing sharp growth in its payroll-card business.
"We have 1.5 million cards out there and we're
adding about 500,000 a year," says Gillin. "We've had
a 220-percent increase in the past year in the total dollars issued
to our cards."
Many states have labor laws that prohibit employees
from being charged to get their pay, so many employers set up these
accounts to allow employees one or two fee-free visits to an ATM
or retail terminal per pay period.
But unless you withdraw your entire paycheck in those
one or two visits, you face the prospect of paying ATM fees and
surcharges every time you need cash. In addition, some issuers charge
a monthly service fee.
Free, then fee
"Our practice is a low monthly fee and two free ATM visits
per month. The monthly fee is about $3 or $4 and it's paid by the
card holder if the program is voluntary, or by the employer if the
employer mandates the program," says Gillin.
Gail Hillebrand, senior attorney with Consumers Union,
parent company of Consumer Reports, says employees should carefully
analyze all fees associated with a particular payroll card program.
"Do I pay a single monthly fee? Does the employer
pick it up? Do I pay every time I use my card? Some activation fees
are much more common with individual accounts. Do I pay to put money
in or to take it out? Do I pay at the ATM? How many free withdrawals
do I get before I pay?"
Consumers Union is urging employers to pay the monthly
fee or "negotiate a contract with the issuer that there will
be no monthly fee." The organization also says employers should
choose a card issuer that has "wide access to surcharge-free