Payroll Card vs. Direct Deposit: Pros and Cons of Each Method

March 27, 2025
The biggest payroll card vs. direct deposit difference lies in the fees associated with these wage distribution methods and salary accessibility. Both options are paperless and convenient, but they have different benefits and drawbacks. A direct deposit transfers funds to the employee’s bank account, while a payroll card gives access to funds through a prepaid card.
This article explores payroll card and direct deposit methods of wage distribution to help you get familiar with their qualities, pros, and cons. The information you discover will allow you to choose the best payroll method for your business. Without further ado, let’s jump right in!
Key Takeaways
- An employee payroll card is a prepaid card—similar to debit cards—to which employers transfer salaries.
- Direct deposit refers to the process of electronic transfer of funds and salaries to employee bank accounts.
- Payroll cards are convenient for bankless workers, but they often come with numerous fees that can reduce their take-home pay.
- Direct deposit is the most common and secure method of transferring salaries that comes with all the benefits of traditional bank accounts.
- Pay cards are more tailored toward companies with seasonal workers or high turnover, while direct deposit is better for a stable workforce.
What Is a Payroll Card?
A payroll card (also referred to as a pay card) is a prepaid card employees can use to access their wages electronically without a bank account. Employers send wages directly to prepaid payroll cards, and employees can withdraw funds or use them to make payments and purchases.
Comparing payroll cards vs. debit cards is one of the easiest ways to understand how the former works. Both allow holders to access their salary, withdraw cash from ATMs, make purchases in stores or online, transfer funds to other accounts, and more. The main difference is that a payroll card isn’t linked to a checking account like a debit card.
Due to this, they are often a good option for employees who don’t have access to traditional bank accounts. Plus, they offer a great alternative to paper checks or cash salaries, which have numerous drawbacks in terms of convenience and payroll security.
When comparing payroll cards vs. paper checks, distributing wages is easier and more efficient with pay cards. Since the salary is transferred electronically, it is immediately available to the employee on their payday.
However, payroll cards often come with fees for withdrawal, balance inquiries, and even inactivity, which can ramp up over time and negatively affect the employee’s salary.
What Is a Direct Deposit?
Direct deposit is a payment method in which funds are directly transferred to the employee’s bank account. It’s an electronic funds transfer (EFT), which, like payroll cards, is much more convenient than paper checks.
This is a standard and most common method of distributing salaries and an integral part of payroll administration in many companies. It’s how the majority of W-2 workers, freelancers, and government employees receive their salaries.
To set up direct deposit, employers need employees’ bank accounts and routing numbers. After that, funds can be quickly and effortlessly sent on paydays through the Automated Clearing House (ACH) network. Employees typically receive their salary regularly and without delays.
Once employees receive funds in their checking or savings accounts, they can use them immediately without having to visit their bank or cash in their checks. This reduces the risk of lost or stolen payments and removes any delays caused by periods when banks don’t work, like during national holidays.
Direct deposit also allows employees to manage their finances more efficiently, as they can set up automated bill payments or savings. Similarly, employers can be much more efficient with payroll processing, as direct deposits allow for reduced operational costs and improved automation.
Payroll Card vs. Direct Deposit: Key Differences
The best way to understand the payroll card vs. direct deposit issue is to examine the differences between the two. Here are the key ones:
#1. Payment Process
The main difference between a payroll card and a direct deposit is in the way employers send wages and employees access them.
With direct deposits, funds are directly transferred to the employee’s bank account through the Automated Clearing House system. Employees don’t have to do anything once they’ve given employers their bank account and routing number. They gain instant access to net pay on their payday.
With a pay card, the employer sends a wage to the employee’s payroll debit card that can be branded (e.g., Visa or American Express) or unbranded (a part of an ATM or POS network). Employees can use these cards like regular debit cards, though pay cards lack some financial management features of bank accounts.
#2. Fees & Costs
One of the biggest drawbacks of payroll cards is the associated fees and costs of using them. These fees vary depending on the employer and the pay card provider, but they can occur not only when performing transactions and withdrawing cash but also due to inactivity and when checking the balance.
CFPB established rules to protect users by ensuring they are clearly informed of all the payroll card fees before opting for this method of receiving salaries. In some states, laws mandate that cardholders must access and withdraw their money for free, in which case the fees can fall onto the employer.
Direct deposit transactions are typically fee-free for employees. Employers usually pay setup fees once and the transaction fees whenever they issue a salary.
#3. Accessibility & Convenience
Direct deposit offers the highest level of accessibility and convenience for both employers and employees. Employers can set up the process and effortlessly send paychecks on paydays, which immediately arrive in employees’ accounts. Employees can use funds however they like, including in online banking and savings, for buying, paying bills, and more.
Payroll cards are convenient and accessible to employees without bank accounts but come with some restrictions and limitations. For starters, there are all the associated fees that typically don’t exist when using regular debit cards. Moreover, some pay cards can’t be used for paying bills or purchasing from some online stores.
#4. Security & Fraud Protection
Direct deposit is one of the most secure methods of sending and receiving salaries. The funds are directly transferred from the employer to the employee’s bank account electronically, and there’s no risk of the paycheck being lost or stolen. Additionally, banks provide plenty of protection to their users, which can be beneficial in case of unauthorized transactions or fraud.
Payroll cards, while still secure, typically aren’t as safe as bank accounts. For instance, FDIC insurance only covers payroll card accounts if they are already held at an insured bank. Plus, some companies, like hotels and airlines, can temporarily freeze pay cards, leaving employees without access to their funds.
Pros and Cons of Payroll Cards
Now that we know the payroll card vs. direct deposit differences, let’s take a look at some of the biggest benefits of using pay cards:
- No need for a bank account. Payroll cards are perfect for employees who don’t have access to traditional bank accounts. They are a great alternative that allows for the electronic transfer of funds while giving workers a debit payment card.
- More convenient than a paper check. Paper checks take time to be printed and delivered, and employees need to cash or deposit them to gain access to their funds. Moreover, checks can expire, be stolen, misplaced, or used for fraud, while pay cards are much safer.
- Cost-effective for payment processing. Paper checks require resources and effort to be printed and delivered to the employees. With payroll cards, there’s no need to spend money on additional supplies.
Here are the cons of using payroll cards:
- Pay card use fees. Many pay cards charge fees when withdrawing cash from ATMs (either for all ATMs or those outside the card issuer’s network). Then, there are potential fees when making purchases, inquiring about your balance, and various other instances that can reduce your take-home pay.
- Limited banking features. Traditional bank accounts offer more utility and flexibility compared to payroll cards. For instance, they allow users to build credit histories, earn interest, have multiple accounts, receive deposits from other sources, etc.
Pros and Cons of Direct Deposits
Since we’ve seen the pros and cons of payroll cards, let’s compare them to the drawbacks and benefits of direct deposit, starting with the biggest advantages:
- Security and convenience. Direct deposit is the most common method of distributing salaries quickly and safely, directly to employees’ accounts. The funds are transferred through secure banking systems, which eliminates the chance of mistakes or theft while giving recipients instant access to their salaries.
- No excessive fees. While there are fees associated with using a banking account, they are typically lower than if you were to use payroll cards. For instance, there are usually no ATM withdrawal and balance inquiry fees.
- Access to banking features. Employees who receive their salaries through direct deposit can take advantage of all the benefits a traditional banking system has to offer. They can access credit, qualify for loans, leverage savings accounts, and improve personal financial stability in the long term.
Some of the disadvantages of direct deposits include:
- Requires a bank account. Employees must have a bank account for direct deposit. As such, this method can be completely unavailable to unbanked workers and they have to receive their salaries via payroll cards or other methods.
- Incurs fees for employers. While there are fewer fees for employees compared to those associated with pay cards, there are still some that employers have to take into consideration. There are the initial setup costs, bank fees for transfers, payroll service fees for employers who use them, administrative costs, etc.
Which Payroll Method Is the Best for Your Business?

The best payroll method for your business depends on several different factors, such as:
- Employee access to banking systems. If an employee doesn’t have access to a traditional bank account, they won’t be able to receive their salary via direct deposit. In this case, a payroll card is a clear choice.
- Payroll processing costs. While direct deposit lowers payroll processing costs compared to distributing paper checks, there are still expenses associated with it. Payroll cards typically cut these costs for employers even further but result in increased fees for employees, reducing their take-home pay.
- Types of employment and turnover rates. If you frequently work with seasonal or contract workers or if you have high turnover and often change employees, payroll cards might be a better choice. Direct deposit is typically better for a stable, long-term workforce.
Keep in mind that employees don’t have to accept a payroll card, and you are legally required to provide at least one alternative method of sending paychecks.

Regardless of your chosen payroll method, you can further simplify the payroll management process by using software to generate relevant documentation with ease. Our paystub generator and W-2 generator allow you to create these documents in three steps:
- Choose the type of document that you want to create and pick a template that suits your needs.
- Input relevant information in blank spaces.
- Preview the document and go to the checkout to download it.
In addition to pay stubs and Form W-2, you can also use our generator to make Form 1099 and invoices.
Final Thoughts
Payroll cards and direct deposits are electronic payroll methods that offer many advantages over traditional paper checks. While the convenience and security of direct deposit are unmatched, pay cards offer similar levels of safety and regulation, making them a great choice for bankless workers.
Choosing between these two methods requires businesses to consider the type of workforce they have and payroll processing costs. While a payroll card system can be more cost-efficient for employers, it’s important to remember that employees must be provided with at least another alternative in case they don’t want pay cards.
Payroll Card vs. Direct Deposit FAQ
#1. Is a pay card better than a direct deposit?
Whether a pay card is better than a direct deposit depends on the situation. Direct deposit is the established way of distributing wages that gives employees all the benefits of a traditional banking system, while a pay card is excellent for those without a bank account.
#2. What is an example of a direct deposit?
An example of a direct deposit is when an employer transfers an employee’s earnings to their bank account on their payday. Instead of collecting a paper check or getting a payroll card, employees receive funds they can use however they want within the traditional banking system.
#3. Are there fees associated with payroll cards?
There are usually several different types of fees associated with payroll cards. Some of the most common ones include purchasing and ATM withdrawal fees, but there can also be balance inquiry and inactivity fees.
#4. Can I switch from a payroll card to a direct deposit?
You should be able to switch from a payroll card to a direct deposit in most cases. Employers are legally obligated to provide employees with at least one alternative to payroll cards, which is, in most cases, direct deposit.
#5. Is direct deposit safer than a payroll card?
Yes, direct deposit is generally a safer employee payment method than a payroll card. Both salary distribution mechanisms are electronic, diminishing the risk of theft and fraud (like with paper checks). However, direct deposit transactions are protected by the established banking system, which includes heavy regulation and fraud monitoring.