|
The APA Visa Paycard Portal provides employers with valuable resources relating to permissible methods of wage payment and focuses on the legal requirements governing payroll cards. Paycards are becoming an increasingly popular component of modern wage payment programs. Unfortunately, however, the wage payment statutes in most states were written well before payroll cards were envisioned, leaving many employers uncertain as to how to use payroll cards while complying with applicable legal requirements. The Paycard Portal provides employers with important information on how to integrate paycards into their wage payment programs, while keeping them up to date on this rapidly developing area of the law.
Confused about the difference between Paycards and other prepaid cards?
To learn more, click here.
States Where Employers May Eliminate Paper Paychecks
To learn more, click here.
Employer Interest in Payroll Cards
In the past, employers have looked to direct deposit as a convenient and efficient method of delivering wages to their employees. Most states prohibit employers from using direct deposit as the sole method of compensating their employees, however. This is because a surprising large number of American workers do not have, and are not eligible for, a bank account. Payroll cards provide a welcomed solution to this problem as personal bank accounts are not required, meaning that all employees, including the "unbanked" workforce, are eligible to participate.
Compliance Is an Important Deployment Concern
As mentioned above, the wage payment statutes and regulations in most states were written well before payroll cards were envisioned. Fortunately, this area of law is evolving and rapidly catching up with modern wage payment technologies. To date, at least fifteen states have updated their wage payment statutes and regulations to expressly permit the use of payroll cards. These states include Colorado, Connecticut, Delaware, Florida, Kansas, Maine, Maryland, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, North Dakota, Oklahoma, Virginia and West Virginia. The wage and hour enforcement agencies in the vast majority of the remaining states have adopted enforcement positions permitting the use of payroll cards provided certain conditions are met. Only one state, Vermont, has officially taken the position that an employer may not use payroll cards to pay their workers. Legislative efforts are being made to update the Vermont wage payment statute. (Click on Resources for links to state provisions.)
Unlike the state wage and hour laws, the federal Fair Labor Standards Act (FLSA), does not expressly address methods of wage payment, although the regulations implementing the FLSA do briefly touch upon the issue. Representatives from the United States Department of Labor have confirmed that the Department is primarily concerned with whether employees receive all of their wages and not with the method of delivering those wages to employees. Employers should be aware of one federal law that does apply to payroll cards, Federal Reserve Regulation E. As discussed below, Regulation E provides consumer protections to individuals involved in electronic fund transfers, including payroll cards. Regulation E's compulsory use provision prohibits an employer from requiring its employees to receive their wages by direct deposit to a particular financial institution. Nevertheless, the Board takes the position that employers may comply with Regulation E by offering their employees the choice between payment by direct deposit or on a payroll card. May an Employer Implement 100% Electronic Wage Payment? Given the benefits of electronic wage payment and recognizing that direct deposit alone is not permitted, many employers have expressed an interest in offering their employees the choice between receiving wages by direct deposit or on a payroll card, thereby eliminating the need for paper paychecks. The laws and enforcement positions in more than 20 states (click here for more info) now expressly allow, or can be interpreted as allowing, such a purely electronic wage payment program. In the remaining states, the decision whether to implement a purely electronic wage payment program without also offering a paper paycheck option will depend on a number of factors, including senior management's level of risk tolerance in face of uncertain legal requirements. Even in states that require a paper paycheck option, many employers have been able to attain high participation rates by emphasizing the benefits of electronic wage payment, providing appropriate education, and showing strong upper-management support.
Payroll Card Fees - An Important Compliance Concern
When approached about the use of payroll cards, government regulators often express concern regarding fees that may be incurred when using the cards. This is because the state wage payment statutes frequently require that employees be paid their wages "without discount," "without any reduction," or "without cost." During the era when U.S. employers owned company stores and sometimes entire towns, this pay requirement was established to protect workers from employers that might make deductions from their net paycheck for goods, housing, and/or services provided to them by the employer. Although this threat to workers is generally nonexistent today, the requirement remains in place. In the context of payroll cards, most states interpret this requirement to mean that employees must be provided at least one means of accessing their full wages each pay period without fees. ATM withdrawals alone normally will not satisfy this requirement due to bank-imposed limits on the amount of funds that can be withdrawn from an ATM machine in one day, together with the fact that ATM machines only dispense cash in $5, $10 or $20 increments. Accordingly, employees are not able to access their full wages (to the penny) without fees from an ATM machine. To satisfy the wage payment statutes payroll card programs, therefore, must provide employees with alternative methods of accessing their full wages without cost. Most programs offer employees a variety of such alternatives. For example, programs that use branded cards (e.g., Visa, MasterCard or Discover) allow employers to obtain the full amount off the card in cash from the teller at any bank that displays the card logo. In addition, the use of branded cards for "signature" (non PIN) transactions often are free. Some card programs also offer courtesy checks that can be written for the full amount of the card balance, and most card programs permit workers to transfer the amount on the card to a bank account or receive cash back from purchases without fees. Beyond the initial employer-paid fees and the administrative costs associated with operating the payroll card program, workers are responsible for paying any subsequent fees incurred when using their payroll cards. Of course, workers must be apprised of possible fees before they are enrolled in their employer's payroll card program. In addition, employers who are considering the use of payroll cards should consult with potential vendors and ask to see their fee schedules. Fees are often a matter of negotiation between the vendor and the employer. Employers also should remember that while one free transaction each pay period satisfies the requirements in most states, this area of law is rapidly changing and differences among state laws do exist. Consumer Protections for Payroll Card Accounts The federal Electronic Fund Transfer Act (EFTA) establishes the rights, liabilities, and responsibilities of parties involved in electronic funds transfers. Pursuant to the EFTA, the Federal Reserve Board has implemented a consumer protection regulation governing electronic fund transfers known as Regulation E. Regulation E's consumer protections include:
Effective July 2007, the Federal Reserve Board amended Regulation E to make clear that its provisions cover payroll card accounts.
Compliance Matters and Trends
If you would like to get more involved, you can send a letter to your local government official informing them of your desire to implement electronic wage payment programs and the need to update current wage payment requirements. If you are a member of the American Payroll Association, you should have an APA member identification number and password that allow you to access the Members Only area of this website. Within this area of the website, APA maintains a Government Relations Web page that highlights the association's lobbying activities.
In 2005, APA established a Government Affairs Task Force Payroll Card Subcommittee. The mission of this group is to monitor legislative and regulatory actions that impact the employer deployment and use of payroll cards throughout the country. Members of the subcommittee hold frequent conference calls to develop strategies that will help APA educate legislators and regulators about the practical benefits of payroll cards as well as how labor laws should be modified to accommodate them for today's workforce.
If you would like to get involved with this GATF subcommittee, please contact Bill Dunn of the APA Government Relations team in Washington, D.C. via e-mail at wdunn@americanpayroll.org. Or, if you just want to keep tabs on the activities of the subcommittee, regularly monitor the Government Relations webpage.
 Back to Top
The material provided on the APA Visa Paycard Portal is for informational purposes only and is not to be considered tax, legal, or financial advice, analysis, or opinion. Readers are reminded that they are solely responsible for complying with federal and state employment laws and are encouraged to seek competent legal authority before taking action based on this material. |
