Direct Deposit or Pay Card? The Best Option for Your Small Business

As a small business owner, you have the freedom to choose how to pay your employees. And with so many options, it can be difficult to make a decision. Two popular payment options for employers include direct deposit and payroll cards. Before choosing between paying employees with direct deposit or pay card, weigh the pros and cons of each.

Direct deposit or pay card?

Before we jump into the pros and cons of pay card vs. direct deposit, let’s briefly recap the differences between them.

Direct deposit

Direct deposit is the most popular payment option for employers. Direct deposit is a type of electronic funds transfer (EFT). An EFT allows the transfer of money from one bank account to another.

With direct deposit, you transfer the amount you owe your employees from your bank account into the employee’s account.

Laws for direct deposit vary from state to state. Some states may allow employers to require mandatory direct deposit, while others do not.

Make sure you understand your state’s direct deposit requirements along with federal laws. Contact your state for more information regarding direct deposit laws.

Pay cards

So, how do payroll cards work? With pay cards, you can add an employee’s wages directly onto a prepaid card. Then, employees can use the card to withdraw money or make purchases.

Payroll cards for employees can be branded or non-branded. A branded card might be an American Express or Visa card. Non-branded cards belong to POS or ATM networks.

As more people start to use payroll cards, additional laws have been put in place regulating their use.

Federal law states that employers can’t force employees to use pay cards. Employers must offer at least one other payment option (e.g., paper checks) in addition to pay cards.

Do your research before making a decision. Check federal and state pay card laws beforehand.

Direct deposit pros and cons

Weigh the pros and cons of implementing direct deposit in your small business.


Direct deposit is a win-win for both employees and employers. Many employers utilize direct deposit because it’s convenient. You can run payroll quickly with direct deposit. And, you don’t have to worry about wasting time printing or handwriting checks.

Employees can also instantly receive their wages after the money is deposited into their accounts. Employers don’t have to spend additional time paying employees. And, employees don’t need to wait for their money.

As a small business owner, the last thing you want to worry about is payroll fraud schemes. Direct deposit is one of the safest ways to pay employees. Unlike checks, direct deposit can’t be misplaced, lost, or stolen. And because you have more control, you don’t have to stress about an employee’s personal information getting into the wrong hands.


One downside to direct deposit is the fees. Employers usually have to pay various fees to utilize direct deposit, such as setup and transaction fees. And, employees might need to pay fees to open a bank account.

Another disadvantage of direct deposit is time sensitivity. You must collect time and attendance records and run payroll on time. Otherwise, your employees could suffer the consequences and not receive their wages by payday.

Payroll cards pros and cons

Before deciding to use payroll cards, review the advantages and disadvantages below.


Unlike direct deposit, payroll cards don’t require your employees to open personal bank accounts. Because pay cards are prepaid and reloadable, your employees don’t have to worry about the fees associated with opening a bank account.

Like direct deposit, employers don’t have to spend extra money on ordering supplies. With other payment methods, like printing checks, you typically need to purchase special ink and check stock paper to pay employees. And, you have to remember to reorder supplies.


Although employees can avoid bank account fees with pay cards, you or your employees might be obligated to pay other types of fees. Similar to direct deposit, pay cards also have set up fees for the employer.

Employees might also find themselves paying a small fee for each transaction they make. Transaction fees can add up. And, your employees may find themselves spending a portion of their pay in transaction fees.

Your state might also have a law in place cracking down on whether the employer must cover transaction fees. If your state requires you to cover pay card fees for your employees, your payroll expenses can start adding up.

Questions to ask yourself about pay card vs. direct deposit

Ask yourself these questions about direct deposit and pay cards for payroll before making a decision.

Direct deposit:

  • Can I afford to pay employees via direct deposit?
  • What kinds of fees must I pay to implement direct deposit?
  • Can I offer direct deposit and remain compliant with federal and state laws?
  • Does my current payroll provider offer direct deposit?

Pay cards:

  • Which state and federal pay card laws do I need to follow?
  • Will my employees need to pay a fee?
  • How much will pay cards cost?
  • How easy is it to load and use pay cards?
What other payment methods are at your disposal?

Download our free guide to compare different methods of paying employees, including pay cards, paychecks, direct deposit, and more.

Looking for an easy way to pay your employees? Use Patriot Software to run payroll and make entering, approving, and distributing wages fast, easy, and affordable. And, we offer free direct deposit and expert support. Get started with your self-guided demo today!

This article has been updated from its original publication date of May 20, 2019.

This is not intended as legal advice; for more information, please click here.

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