Vrakas CPAs, Here Are Your Articles for Wednesday, November 07, 2018
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Payroll Cards: Know the Full Story


Employees who do not have a relationship with a financial institution are typically referred to as "unbanked," which prevents them from being paid by direct deposit. As a solution, some employers offer payroll cards.

What is a payroll card?

A payroll card is a reloadable prepaid debit card that is funded with employee net wages. (Like direct deposit, it is a form of electronic payment.) The employer deposits the employee's take-home wages into a payroll account, which is held by the payroll card company. The employee then uses the payroll card to withdraw money, purchase items and pay bills.

What are the benefits of a payroll card?

  • Employees can access their money right away.
  • It's usually cheaper to use a payroll card than a check-cashing service.
  • A payroll card is safer to carry than large sums of cash.
  • Payroll cards help minimize check fraud, as they require the use of a personal identification number.
  • Employers are able to save on costs that come with printing and mailing paper checks.
  • Employers do not have to worry about checks getting lost, nor do they have to void or reissue checks.
  • Employees are more productive, since they don't have to spend time cashing paychecks.

What kinds of fees are associated with the card?

Fees vary by payroll card company, but may include:

  • Monthly fee.
  • Fee for making more than a certain number of transactions.
  • ATM fee.
  • Point-of-sale fee.
  • Inactivity fee, for not using the card for a certain period of time.
  • Fee to replace the card.
  • Fee to put money on the card.

Considering that payroll cards are often offered to low-income earners who do not have bank accounts, the issue of fees is concerning. Fortunately, many states have payroll card laws limiting the fees that employees can be charged for using payroll cards.

Can employers require that all employees use payroll cards?

Per the Consumer Financial Protection Bureau, it is unlawful for employers to mandate payroll card use. If the employer wants to provide payroll cards, it must offer employees at least one other alternative, such as direct deposit or paper check. Many states have this rule as well.

What are some best practices to follow?

  • Fully research potential payroll card vendors.
  • Select a vendor that is financially stable, with a track record of dependability.
  • Choose a payroll card that is affordable and convenient for employees to use.
  • Comply with applicable state laws on payroll cards.
  • Verify that the payroll card vendor complies with Regulation E requirements (disclosures, unauthorized transactions, etc.), network operating rules (such as for Visa, Mastercard, etc.), data security rules, anti-money laundering laws, and rules that require employees to have access to their accounts.

Let us know if you have any questions as you proceed.


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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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