5 Thoughts on Payroll Debit Cards

Many organizations are moving to a payroll debit card model for employee payments in lieu of cash (yes cash), checks or direct deposit.  Debit cards and direct deposit are two options many organizations are offering and will continue to offer.  We need to be aware of laws that regulate the use of the payroll debit cards and provide alternative options, per federal and state guidelines.  One of the concerns at the federal level with these cards is that an organization cannot mandate where the funds can be redeemed.  This mandate would violate the Electronic Fund Transfer Act (EFTA).  Payroll debit card laws are written and enforced at the state level, some states prohibit employers from using pay cards without consent, place limitations on fees that can be charged and impose disclosure requirements.  New York State is a state that requires consent and there have been recent court cases on this issue.

Below are 5 considerations on payroll debit cards:

1. “Do not make their use mandatory.  This is simple advice but necessary, provide options for the workforce to utilize a direct deposit option.  Working with a local bank or credit union is a great way to ensure employees understand direct deposit, checking and savings accounts.
2. Limit fees.  If it was my money or paycheck, I wouldn’t be happy seeing a fee associated with withdrawals or moving money from one account to another.  Limit or eliminate fees, fees might not be legal in your state.
3. Disclose every detail.  This doesn’t mean provide a 30-page contract that details everything in legal terms.  Ensure employees can understand the detail and have the option to ask questions.  A frequently asked question list is a great place to start with disclosing details in an easy to understand format.  Work with the debit card company to ensure accuracy and legality.
4. Ensure that the full amount can be withdrawn each pay period in multiple withdrawals without fees.  This harkens back to the second suggestion.  If it was my money, I wouldn’t be happy with any fees.  It’s the employee’s money, ensure they can access and move it around as needed.
5. Ensure that there is a reasonable number of establishments nearby from which money can be withdrawn.”[i]  Working with a local bank or credit union with easy to access ATM machines and multiple locations is a great option.  Having a map with locations is another solution to assist employees withdraw cash or bank.  Negotiating zero fees with the financial institution is an option, or at least a question to ask.  Again, create a process that assists employees with the money withdrawal.  Provide alternatives and options for employees.

 

New York State Area’s to Consider:

“Beyond the notice and consent requirements, the additional restrictions applicable to using payroll debit cards included:

1. Imposition of a seven-business day waiting period from execution of consent to initial payment by means of payroll debit card.
2. A prohibition on a laundry list of potential fees.
3. Requiring that wages paid by payroll debit card may not be linked to any form of credit.
4. A prohibition on employers passing on costs associated with payroll debit card accounts or otherwise receiving kickbacks from third parties associated with payroll debit card programs.
5. A prohibition on expiration of wages.
6. An additional notice requirement if there are changes in the terms and conditions of the card accounts or fees charged to employees.
7. A requirement that union approval be obtained for unionized employees.
8. Providing a detailed written notice to employees.
9. Obtaining voluntary consent prior to payment by either of these methods.”[ii]

Additional information on New York State:

New York State Rulemaking Activity

New York State Supreme Court Case Ruling

New York State Notice and Consent Direct Deposit Model Form

New York State Notice and Consent Payroll Debit Cards Model Form

Pennsylvania Regulations:

“The new amendments resolve the uncertainty. Under the new law, the use of payroll debit cards is permitted if, among other things:

1. The employer does not mandate the use of payroll debit cards.
2. The employer complies with stringent notice requirements.
3. The employee is allowed one free withdrawal of all wages earned per pay period.
4. The employee is provided a free method of checking the balance on the card electronically or by telephone.
5. There are no fees for using the payroll card.”[iii]

Federal Bulletin on Payroll Debit Cards

The laws and regulations vary on payroll debit cards from state-to-state and will continue to evolve as payment options and technology evolves.  Be aware of the regulations in each state you operate in.  My recommendation is to make this an option for employees, just as direct deposit is an option (but strongly preferred).  Don’t force employees into using a payroll debit card or direct deposit, it could violate the law.  Seek guidance prior to implementing payroll debit cards and work with a reputable company.  SHRM’s vendor directory has four options to choose from and there are multiple websites that rank these organizations, based on service, size and reputation.  This should not be a one size fits all model, benchmark and find a solution that works best for your organization.  Your payroll provider and/or local bank might have suggestions on preferred vendors to consider or suggested alternatives.

New York State Department of Labor Drops Proposal Regarding Call-In Pay

“The New York State Department of Labor announced recently that it does not intend to implement its proposed regulations that would have imposed burdensome requirements on employers to provide call-in pay to employees under a variety of circumstances not currently covered under existing regulations. The regulations were initially proposed in November 2017, and then were revised in December 2018 after public comments were received and reviewed. The NYSDOL now intends to let the regulatory process expire with respect to the proposed regulations and potentially revisit this issue in the future.”[iv]  Continue to watch for the revisit in the future, this will impact most organizations in New York State.

NYC Mandates Workplace Lactation Room March 18, 2019

“Beginning March 18, 2019, employers in the Big Apple with at least four workers must provide lactation rooms and create a written lactation-accommodation policy that must be given to workers when they are hired. The city’s human rights commission will release a model policy before the effective date.”[v]

[i] https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/employers-payroll-debit-cards-.aspx

[ii] https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/new-york-state-regulations-governing-payroll-debit-cards-revoked.aspx

[iii] https://www.shrm.org/ResourcesAndTools/legal-and-compliance/state-and-local-updates/pages/pennsylvania-law-clarifies-payroll-debit-card-use.aspx

[iv] https://www.bsk.com/news-insights/new-york-state-department-of-labor-drops-proposal-regarding-call-in-pay-for-now

[v] SHRM email

– Matthew Burr, HR Consultant