Direct Deposit vs Payroll Cards - Best Way to Pay Your Employees

Direct Deposit vs Payroll Cards - Detailed Comparison
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Allen Wood
By Allen Wood
February 2, 2023
Time to read: 6 Minutes

For any business to thrive, prompt payment of its workforce is a priority. Often, business owners are unsure of the best payment method for their staff. Payroll cards and direct deposit are popular means of payment among business owners. Both payment methods have their benefits and downsides.

For this reason, it’s necessary to consider the advantages and disadvantages of each before settling on a payment option.

Opting for the ideal payroll method for your business could give you a robust advantage in the industry. While some believe using a direct deposit is the better option, others disagree and opt for payroll cards. In this article, you'll learn the difference between a direct deposit and a payroll card in paying your employees. However, before that, let's start with the basics.

What Is Direct Deposit?

Direct Deposit

Direct deposit refers to the electronic transfer (e-transfer) of money from an employer to an employee's bank account. This is the most popular means of transfer among employers. Based on the "Getting Paid in America" survey in 2020, about 94% of employees are paid with direct deposits.

Aside from payroll purposes, direct deposits can also be used to pay bills, taxes, and other governmental dues.

What Are Payroll Cards?

Payroll Card

Payroll cards are plastic cards resembling credit or debit cards. An employer loads employees' wages on the payroll cards every payday, after which the workers can use the payment card to collect funds, settle bills, and make purchases. Depending on the organization, the pay cards can be branded or unbranded. Branded pay cards include those with American Express or Visa cards. Unbranded payroll cards belong to ATM networks or POS.

Difference Between Direct Deposits and Payroll Cards

Direct Deposit

Payroll Cards

Paid directly from an employer into an employee's bank account.

A prepaid card through which an employer loads an employee's wages.

Doesn't require fees. Allows a worker to keep all hard-earned money.

Payroll cards have many fees attached to them.

Requires a bank account to receive payment.

More convenient for employees without any bank account.

Paid money is safer with a direct deposit.

Cases of fraudulent activities may not be easily detected.

Doesn't have reward opportunities like pay cards.

Better access to rewards.

Once an employer releases funds through the bank, employees will have access to their pay on a set day.

Grants access to funds about 2 days before the set payday.

Better opportunity to save effortlessly.

It's not easy to save funds with a pay card.

Once your deposits are in a checking account, you can use debit cards anywhere.

Pay cards cannot be used everywhere.

Pros of Direct Deposit

  • Offers flexibility

  • No employee fees

  • Electronic transfer

  • Quick and efficient

  • Less risk of fraud

Cons of Direct Deposit

  • Less accessibility

  • High employer fees

  • Must fill out new forms when there is a change

Pros of Payroll Cards

  • Paperless

  • Convenient

  • Numerous uses

  • Less debt risk

  • Little employer cost

  • Accessible to the unbanked

Cons of Payroll Cards

  • High employee fees

  • Card be lost or stolen

  • Low protection against theft

Which Solution Is Best for Your Business?

It depends on your priorities when picking a payroll option for your business. While each method has its benefits, considering the drawbacks will help you make an ideal decision.

If you're considering direct deposits for your business, ask yourself if you can afford to pay your staff through direct deposits. Since direct deposits charge more employer fees, you should be sure it's something you can afford. Also, consider federal and state laws before deciding on your choice. If your present payroll provider doesn't offer direct deposits, you may want to consider payroll cards.

Furthermore, you should consider your employees' plight when making a decision. If more employees are unbanked than those with bank accounts, considering the payroll card option may be ideal in such a situation.

Can Payroll Cards Replace Direct Deposits?

Payroll cards can replace direct deposits in cases where the organization has low-income employees who do not own bank accounts. However, direct deposits have been the most popular payment method among employers.

In employment termination cases, payroll cards allow employers to pay off a laid-off employee all at once, so the worker does not need to return to pick up a final check. Payroll cards provide more information security for workers, as they do not need to retain personal data for payroll cards. Also, some card companies let you send money directly to your bank account, though this may take an extra day. 

With all these benefits, does this mean it's time to switch to payroll cards? Most business owners and employees using direct deposits will probably stick with the payment method since it's what they're used to. However, payroll cards are gaining popularity, and it's something to watch out for in the coming years.

Final Thoughts on Payroll Cards vs. Direct Deposit 

Direct Deposit vs Payroll Cards

Understanding the peculiarities of your business is key to helping it thrive. Although a direct deposit is the preferred choice for most businesses, payroll cards provide competition. New business owners should consider payment options suitable for their business before deciding between payroll cards and direct deposits. In addition, ensure you check local and federal laws regarding using these payroll solutions.

Now that you've learned the difference between direct deposit and payroll cards, you might wonder what the difference between a warrant and a check is. We have covered this topic in this warrant vs check comparison.

Frequently Asked Questions (FAQs)

1. What is required for direct deposit?

Setting up direct deposit requires personal details like a signature, address, name, and Social Security number. You'll also need to provide your bank account information to your employer. Also, companies will provide financial statements and their Employer Identification Number (EIN). You will have to give your bank account information, but you may also have to attach a voided check.

2. How does an employer set up direct deposit for employees?

Setting up direct deposits for employees is a joint task between the company owner and the employees. The employer must initiate the process, while the employees must provide accurate information before it can be set up.

The first step is to decide on a direct deposit provider and set up a company payroll account. Next is to get employees' information, including their account and routing numbers, account type, and bank name.

Next, the employer adds the staff information to the organization's payroll and sets up a payment schedule for the payroll process. After verification and activation, employees can start receiving payments via direct deposit.

3. How much does it cost for a company to set up direct deposit?

The cost of setting up direct deposit varies depending on the provider. According to the NFIB, fees can vary between $50 and $149. While some banks deduct monthly charges for direct deposit, others do not. Ensure you confirm the fees with your direct deposit provider, as they may have different charges for certain transactions. 

4. How to add money to my payroll card?

Adding money to a payroll card can be done in multiple ways. You can transfer money from a checking account or prepaid card. An employer can also set up a direct paycheck deposit to the payroll card.

Furthermore, purchasing a reload pack is another way to add money to your payroll card. Also, transferring funds through the card's financial institution or at specific retail locations is another way to add money to your payroll card.

For a complete explanation of how debit cards work, check out this article on “How does a payroll debit card work?”

5. How do you use a payroll card?

A pay card works akin to a debit card. The cash is automatically sent to the payee's card during payment time. Once the funds are transferred, the money is available instantly. Therefore, an employee can withdraw funds from an ATM and make online purchases.

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