Employer Use of Payroll Cards Can Be Expensive for Employees

Every financial product that appears to make your life easier, likely comes with a fee that, in some way, will actually make your life more difficult. Take payroll cards, for example. Many employers are choosing to pay their employees via payroll cards in lieu of a paper check or direct deposit into a checking account. The cards operate like a debit or prepaid card, allowing the employees to make purchases, pay bills online, or withdraw cash from an ATM.

Payroll cards sound convenient, especially for employees who have ditched banks or who are unable to open a checking account. However, these cards, like many other financial products, often come with fees that employees are unaware of. For example, there may be fees for withdrawing money from an ATM, receiving a paper statement, for replacing a card, or even an inactivity fee when the card remains dormant for a period of time.

These cards have recently come under scrutiny from consumer advocate groups and lawmakers. Not just because there are fees associated with the card, but also because some employers aren’t giving their employees another option for getting paid. According to a Forbes.com article on the subject, many states have wage laws that require employers to pay their workers in a way that doesn’t incur an unavoidable cost, e.g. fees. Employers have to at least offer a fee-free payment option.

Some employers with payroll cards actually do have alternative payment methods, like paper check, for their employees. However, news outlets report that, in the presence of other options, payroll cards are often the default choice. Employees have go through a lengthy opt-out process to choose a less expensive way to get paid.

A McDonalds worker in Philadelphia is suing local franchise owners for requiring her to be paid via a payroll card from Chase Bank. The worker, Natalie Gunshannon, could have been paid via direct deposit at her local credit union, which didn’t charge a fee, according to the New York Times. But, the owners said she could only be paid via the payroll card which charged charged $1.50 for ATM withdrawals, $5 to withdraw cash over the counter, $1 for a balance inquiry, 75 cents for each bill paid online, and $15 to replace a lost or stolen card. Natalie was only making $7.44 an hour.

Unfortunately, a company’s decision to pay employees with a payroll card seems to be largely about making and saving money. Companies can save thousands of dollars in payroll costs by switching to payroll cards. Not only that, some payroll card issuers incentivize the cards, offering rewards to companies for each employee enrolled. In all fairness, employers may not realize the cards cut into their employees earnings or that the cards come with fees which may violate wage laws. A New York Times article says the owners of the Philadelphia McDonald’s, where Ms. Gunshannon worked, has changed their payment options since the lawsuit, which is still pending.

Help may be on the way for other employees who’ve been forced to accept payroll cards and their fees. The New York Attorney General recently requested information on payroll cards from some of the state’s top employers to determine whether these companies have violated labor laws.

If you’re currently receiving pay via a payroll card, ask your employer whether paper check or direct deposit is available. If not, learn the card’s fees and when you can be charged. Try to avoid as many of the fees as possible, for example by limiting your ATM withdrawals. If you believe your employer is violating state wage and labor laws by failing to offer other payment methods, consider filing a complaint with your state Attorney General.

Sources: Forbes.com, NYTimes.com, Philly.com, TIME.com