Payroll Direct Deposit and Payroll Cards

How to evaluate direct deposit and payroll card options

While there are few no-brainers in business, direct deposit is one of them. Depositing funds directly into an employee's bank account, rather than issuing a paper check, provides a number of advantages for both employer and employee.

For the employee, there's the convenience of getting their funds sooner. For the employer, it can mean lower payroll-processing costs. It may only come down to a few pennies per check, so if you have only a few employees, the cost savings may not be significant. But the convenience factor is still huge.

Payroll cards are another story: They offer advantages to employees who don't have bank accounts, but come with significant disadvantages as well.

  1. Payroll cards give employees access to their pay by using what looks like a bank debit card. Employees can use the cards at participating ATMs to withdraw cash or in certain retail stores to make purchases.
  2. Because of the fees involved, employees may find that using them is more expensive than having a bank account, but less expensive than using retail check-cashing outfits.
  3. Some payroll-card vendors charge users numerous "hidden" fees.

Sign up for direct deposit


To set up direct deposit, you'll likely pay a nominal one-time set-up fee, then about $4 to $9 per payroll period plus a nominal fee per check, usually a few cents. Even if your savings don't outweigh your costs, you might still want to offer direct deposit as a low-cost employee benefit.

Consider payroll cards


Payroll cards can work for employees who don't have bank accounts. But be sure to inform them of the costs. Ask prospective vendors whether employees can use the cards at ATMs and for in-store purchases, whether they'll incur a fee each time they use the card, and whether additional fees apply (i.e., "inactivity," replacement or load-in fees).

Do your due diligence


Payroll companies are less closely regulated than banks and thus require due diligence, particularly if you're not dealing with one of the better-known companies.

  • Payroll cards can come with many fees. Some employers offer to pay the fees as an added benefit to employees.
  • Ask prospective payroll-card vendors to provide a list of fees that you can give to your employees.
  • If a payroll-card vendor offers employees "cash advance," advise employees not to use it, as it can make debt-ridden employees fall further into debt.
  • Direct deposit also gives you a more accurate sense of cash flow: Since payroll funds clear faster, you have a better gauge on your available cash.
  • Most payroll vendors offer direct deposit, so if you already use a payroll service, you'll likely be able to add direct deposit without switching vendors.

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