Thinking About Using Payroll Debit Cards? Read This First


Some businesses may prefer paying workers with payroll debit cards rather than by check or direct deposit, but employers should be aware of laws that regulate the use of payroll cards and not make them mandatory.

Payroll cards are reloadable debit cards that are funded with employee wages each pay period. Employers that opt to use such cards can save on the cost of printing and mailing paychecks. Employees who don't have bank accounts may also benefit from pay cards, because workers can use the cards to pay bills and avoid check-cashing fees.

The biggest federal issue with payroll cards is that businesses can't mandate that the funds be redeemed at a specific financial institution, said Richard Greenberg, an attorney with Jackson Lewis in New York City. Such a mandate would violate the Electronic Fund Transfer Act (EFTA), which covers direct deposits and payroll cards.

However, payroll card use is mostly governed by state law. Some state laws prohibit employers from using pay cards without consent, place strict limitations on the fees that can be charged and impose disclosure requirements, Greenberg noted.

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"Make sure to comply to the letter," said Rick Grimaldi, an attorney with Fisher Phillips in Philadelphia and Washington, D.C. "This is still uncharted territory, so make it as easy as possible … for your employees."


The biggest criticism of payroll cards is that the associated costs may be passed along to workers. Payroll cards are often offered as an alternative for low-income earners who don't have bank accounts or who work temporary jobs that don't provide for direct deposit. However, employees might be charged fees at the point-of-purchase, for accessing their wages at the ATM or for checking the balance on the card.

To combat these issues, some states have passed laws restricting the fees that workers can be charged for using payroll cards. In Pennsylvania, for example, employers may pay workers through payroll cards so long as certain conditions are met. Among other requirements, employees are entitled to one free withdrawal of all the wages they earned each pay period, and they must be able to check the balance on the card free of charge.

More than half of the states have laws regarding payroll cards, and many of those laws require that employees have free access to their full pay at least once per pay period or have a certain amount of free transactions per month. In addition to Pennsylvania, the following states have rules restricting fees: Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Kansas, Maine, Maryland, Michigan, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, Oregon, Rhode Island, Tennessee, Utah, Vermont, Virginia and Washington.


Many states with laws governing payroll cards require employers to offer alternative means for employees to receive their wages, such as by check, direct deposit or cash.

The Consumer Financial Protection Bureau—the federal agency that enforces the EFTA—has also taken the position that mandating payroll card use is unlawful under federal law. So it's a good idea for employers that want to use payroll cards to offer other choices. Employers should note that many states also require employers to provide certain notices and disclosures about payroll cards. 

Best Practices

If there are conflicting federal and state laws, the law that is more favorable to the employee will control, Grimaldi explained. However, he noted that the laws aren't fully developed for payroll cards. "At the end of the day, when it comes to wages—particularly payroll type issues—most states and the federal government are living in the last century. Things like payroll debit cards are decidedly 21st century issues."

For businesses that want to use payroll cards, Greenberg recommends that employers:

  • Do not make their use mandatory.  
  • Limit fees.
  • Disclose every detail. 
  • Ensure that the full amount can be withdrawn each pay period in multiple withdrawals without fees.  
  • Ensure that there is a reasonable number of establishments nearby from which money can be withdrawn.

"Finally, of course, employers must make sure that the payment system is integrated with payroll to ensure any pay statement requirements under state law are met," he added.


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