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Paid in Full: Using Payroll Cards to Pay Employees' Wages
Practical Law Legal Update 9-583-6585 (Approx. 4 pages)
Paid in Full: Using Payroll Cards to Pay Employees' Wages
by Practical Law Labor & Employment
| Published on 07 Oct 2014 • USA (National/Federal) |
Resources addressing the growing popularity of using payroll cards to pay employees' wages, and discussing issues for employers to consider in implementing a payroll card program and complying with applicable state laws.
The fastest growing non-cash method of paying employees' wages is the payroll card. In 2012, $34 billion was loaded onto 4.6 million active payroll cards, according to the Aite Group research firm, and those numbers are expected to more than double by 2017.
A type of debit card, employers can load employees' net wages onto payroll cards each pay period, rather than issuing paper checks. Employees can use the cards to:
- Obtain funds from ATMs.
- Transfer funds to other accounts.
- Make internet-based or cash-back purchases, up to the amount of the employee's entire net pay.
Payroll cards are frequently offered as an additional option to employees who wish to participate in direct deposit but do not have bank accounts. Employers favor payroll cards because they:
- Eliminate the costs associated with paper checks by offering employees an additional type of direct deposit.
- Eliminate check delivery fees.
- Minimize stop payment exposure.
- Reduce the employer's carbon footprint.
The use of payroll cards, many aspects of which are largely unregulated, has also attracted the scrutiny of a group of US senators and the New York State Attorney General's Office, who are looking into the wide variation in fees and terms imposed on employees using payroll cards. For example, some assess monthly fees as high as $9.95 and others charge as much as $1.00 for a balance inquiry at an ATM. These fees can accumulate and effectively reduce an employee's wages.
While the federal Fair Labor Standards Act (FLSA) does not address payroll cards, the Electronic Fund Transfer Act (EFTA), which governs the electronic transfer of funds to and from consumer accounts, provides some protection to employees using payroll cards by mandating certain rights regarding:
- Written disclosures of fees.
- Limited liability for unauthorized transfers.
- Access to account history.
- Error resolution rights.
- Wage payment options.
Additionally, most states currently regulate payroll cards, either through express statutory or regulatory language or informal guidance. While payroll card laws vary by state, the laws are designed to ensure that employees receive the pay they are entitled to without incurring extra fees to access it. State regulations commonly include:
- Requirements for employee consent to the cards.
- Requirements that employees be permitted to withdraw funds without additional charges up to the full amount of the employee's net pay at least once each pay period.
- Full disclosure of all service fees.
To help employers learn more about how payroll cards work, issues to consider in implementing a payroll card wage payment program and complying with both federal and state requirements, including state laws regarding permissible wage payment methods such as payroll cards and direct deposit, Practical Law has published the following resources: