Actually, the satisfaction of pocketing earnings is spoiled if workers don’t have bank accounts and must pay high fees to a currency exchange to cash their paychecks, consumer advocates say.
Instead, they could carry a “payroll card,” which can be used online and at stores and ATMs.
Carrying a logo, with brand names like MasterCard or Visa, payroll cards look just like debit cards, says Michael Chittaro, senior director of prepaid products for Visa. And, they function like prepaid debit cards, but instead of the user loading money onto the cards, an employer electronically loads a worker’s earnings on it every pay period.
Right now, a small segment of workers receive payroll cards, notes Bill Dunn, director of government relations for American Payroll Association.
They are utilized in retail, food services and businesses with many hourly workers and are less costly to administer than paper checks, Chittaro says.
Ron Hynes, group executive of MasterCard Global Prepaid Solutions, says many state and local governments also are giving workers the payroll card option.
But cards can cost workers, too, warns Lauren Saunders, managing attorney of the National Consumer Law Center. Below are points to consider if you’re offered plastic pay.
Federal rules, as well as many state laws, stipulate that, “employees must have a choice of wage payment method and be able to change it,” Dunn says.
The choice is often between a payroll card and direct deposit, whereby pay is electronically credited to a worker’s bank checking account or savings account, Dunn says.
Michael Collins, faculty director of the Center for Financial Security at the University of Wisconsin, says an estimated 8 percent to 15 percent of workers don’t use a bank.
“A checking account might carry fees of several dollars a month, and if you don’t keep a large balance, that’s just too much,” Collins says. “And many dropped their bank because of high overdraft fees.”
Chittaro says for the “unbanked,” or people without a checking account, the obvious choice between direct deposit and a card is the latter. Some workers choose payroll cards, not because they are dissatisfied with banks, but because they like the ability to immediately shop or use the card online.
Indeed, payroll cards and banking services are alike in that consumers must use them carefully to avoid fees, Collins says.
Do I understand the card costs and potential uses?
Federal rules require that workers be given disclosure of all cost from payroll card usage. Often, workers receive in-person training as well as literature on card use.
“I believe that virtually all payroll cards have some method of cashing out the card once per pay period without a fee,” Saunders says. Workers can convert the pay on the card to cash at certain banks or ATMs.
Collins advises consumers to look for clear instructions from your employer on which network of ATMs will offer at least one fee-free withdrawal and is more economical to use generally.
As to uses, Dunn says payroll cards can be used to pay bills online and to pay for merchandise at a retail counter. When paying a bill with a card, it “generally” doesn’t involve fees, he says.
It’s difficult to generalize about costs because each payroll program can be different, Dunn says. That’s why a worker should study the card instructions before using it.
As to perks, payroll card issuers often provide convenience checks along with a card. A convenience check is linked to a consumer’s card account and can be used to make purchases or take cash advances.
Because these cards function like debit cards, you’ll need a PIN to get cash from an ATM, which offers some protection from theft, American Payroll Association’s Dunn says. Still, a stolen card might be used for purchases, he says.
Federal rules mandate that workers have limited liability from fraudulent use of their cards.
Collins advises workers to look to the instructions on the card for reporting lost or stolen cards. Timely reporting may mean you’re not responsible for fraudulent charges, he says. However, there can be a fee to reissue a new card.
Also, once the earnings on a payroll card are exhausted, purchases can’t be made. To keep track, you typically can check online or over the phone for balance information, Dunn says. Workers need to remember that they’ll need to have cash or a credit card ready if they’re making a purchase and their payroll card balance is low.
However, some cards may allow you to opt in for overdraft protection, but you’ll pay a fee, Dunn says.
Visa’s Chittaro points out that payroll cards could be as costly as checking for those who don’t keep a big balance and use overdrafts. “As an industry, we don’t like to see (overdraft protection),” he says.