The State Worker

State payroll-card fees hit low-wage workers hardest

Payroll card ranking by the National Consumer Law Center
Payroll card ranking by the National Consumer Law Center National Consumer Law Center

As state governments move more employees from paper paychecks to payroll cards, a new report finds that some plastic comes with hefty fees that are chipping away at wages of workers least able to afford the added expense.

California, which has the largest state government workforce in the nation, does not use payroll cards. A little more than two-thirds of employees paid through the State Controller’s Office receive their pay via direct deposit to a bank account, said Controller’s Office spokeswoman Taryn Kinney.

But of the 19 states that have deployed the cards so far, Kansas, Missouri and Virginia received a one “thumb down” rating from the National Consumer Law Center for what it says are inappropriate fees.

Kansas and Missouri, for example, charge overdraft fees that “are completely unacceptable on payroll cards,” the center’s report states,” and (they) should both be ashamed of paying employee wages on a card that promotes this predatory feature.”

Virginia also was rated at the bottom because its card “has a large umber of fees that most other cards do not have,” the center found.

At the other end, Nebraska, Oregon and Oklahoma carry virtually no transaction or overdraft fees and allow out-of-network ATM use at no charge, the report states. The combination of cost-free features earned those three states a “two thumbs up” rating from the center.

Programs in 12 other states earned either one thumb up or a neutral rating because they charge fees, although not as many as the three bottom-ranked cards.

“More employees are expected to receive payroll cards than paychecks” this year, the report states. The programs appeal most to the lowest-paid state workers who can least afford extra fees.

0Number of states that require payroll card providers to report fees collected from cardholders.

The state programs are similar to the electronic transfer cards California uses to credit unemployment benefits to jobless workers. State employers directly deposit money to the payroll cards instead of personal bank accounts. Banks and credit unions administer the accounts and collect fees the card users incur.

None of the 19 states using payroll cards required their card providers to report fees charged to employees, the center’s researchers said.

Nationally, an estimated 7.4 million public- and private-sector workers will receive their wages via payroll cards this year, compared with 6.7 million who will receive paper checks, according to Aite Group, a financial services consulting firm. The company estimates 12.2 million will go plastic in 2019 with just 2.2 million sticking with ink-on-paper.

Employers save up to 40 percent of payroll costs when they distribute salaries to cards, which are more secure than paper checks.

Cardholders without bank accounts benefit from payroll plastic by having access to ATMs for cash and the ability to make purchases in stores and online bill pay with a card. Some programs offer convenience checks and other services without the costs of maintaining a bank account.