How To Start & Grow Your Business

Payroll Cards – Convenience or Crooked?

Dori K. Stibolt
Jan 8th, 2015
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    Highlights

    1Employees should be able to access their full wages. 2Must be an alternative, not required. 3Subject to the Electronic Funds Transfer Act (EFTA).
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Payroll

Sales-Stack of Credit Cards Photo Credit: Christophe Testi Shutterstock

More and more, employers are ditching the traditional paper check and providing wages to their employees via a payroll card which works much like a debit card or gift card. But, some of those payroll cards come with fees and that has spawned litigation around the country.

Here in Florida, Florida Statute § 532.01 was amended in 2009 to include payroll cards as a permissible form of wage payment. Employers that choose to use payroll debit must ensure that the instrument is negotiable and payable in cash, on demand, without discount, at an established place of business in the state, the name and address of which must appear on the instrument or in the payroll debit card issuing materials. But, that doesn’t mean that fees associated with payroll cards are not permitted. Rather, just like a check cashing fee, if an employee chooses to use his payroll card at a location where he will incur fees that is his choice.

There are benefits to payroll cards for the employee. Payroll cards can be a less expensive option for low wage workers who do not have access to a free or low cost checking account. Similarly, payroll cards can be cheaper than check cashing stores and other similar services.

Of course, employers like payroll cards because a payroll card deposit costs $0.35 compared to $2.00 to issue a payroll check. Multiply those savings for hundreds of employees and it adds up.

Best Practices

In order for an employer to implement a successful payroll card program, make sure to be aware of the following best practices tips:

  • Employees should be able to access their full wages, without fee, at least once per pay period. Failure to provide such access will open up the employer to Fair Labor Standard Act or other minimum wage litigation (assuming that the fees bring the wages below the permissible threshold).
  • Federal law prohibits mandating payroll cards, rather employers must offer at least one other alternative.
  • Additionally, employers should be aware that payroll cards are subject to federal regulation under the Electronic Funds Transfer Act (“EFTA”) and Regulation E, which implements the EFTA. Accordingly, the regulations require that the employee receive certain disclosures concerning the fees associated with the payroll card. Also, there are limitations on the employee’s liability for unauthorized transfers using the payroll card (think about your own debit card). Regulation E also provides error resolution procedures relating to the payroll card. While the third party payroll card provider will likely be responsible for compliance with Regulation E, the employer likely will be the target of litigation if there is some failure or employees are dissatisfied with the payroll card program.

This article was written by Dori K. Stibolt and published on the Fox Rothschild blog. 

Fox Rothschild LLP is a national law firm with more than 600 attorneys practicing in 20 offices coast to coast.