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APA Legislative Background Paper
The American Payroll Association's Government Affairs Task Force has studied the current regulatory environment in which paycards have been implemented and developed this guide, which explains how such cards work and why payroll card programs constitute a lawful method of wage payment. This information is intended to provide government policymakers, employers, and other interested stakeholders with a comprehensive source of information concerning paycards.
Federal Regulation of Payroll Cards
Federal Reserve Board Docs Related to Regulation E & Paycards
Board of Governors of the Federal Reserve System
Dated August 24, 2006
Electronic Fund Transfers, Final Rule
The Board is amending Regulation E, which implements the Electronic Fund Transfer Act, and the official staff commentary to the regulation, which interprets the requirements of Regulation E. The final rule provides that Regulation E covers payroll card accounts that are established directly or indirectly through an employer, and to which transfers of the consumer's salary, wages, or other employee compensation are made on a recurring basis. The final rule also provides financial institutions with an alternative to providing periodic statements for payroll card accounts if they make account information available to consumers by specified means. This final rule is effective July 1, 2007.
The Board is amending Regulation E, which implements the Electronic Fund Transfer Act, and the official staff commentary to the regulation, which interprets the requirements of Regulation E. The final rule provides that Regulation E covers payroll card accounts that are established directly or indirectly through an employer, and to which transfers of the consumer's salary, wages, or other employee compensation are made on a recurring basis. The final rule also provides financial institutions with an alternative to providing periodic statements for payroll card accounts if they make account information available to consumers by specified means. This final rule is effective July 1, 2007.
Federal Regulations
Title 12: Banks and Banking
Part 205 - Electronic Fund Transfers (Regulation E)
Authority. The regulation in this part, known as Regulation E, is issued by the Board of Governors of the Federal Reserve System pursuant to the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.). The information-collection requirements have been approved by the Office of Management and Budget under 44 U.S.C. 3501 et seq. and have been assigned OMB No. 7100-0200.
Purpose. This part carries out the purposes of the Electronic Fund Transfer Act, which establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer services and of financial institutions that offer these services. The primary objective of the act and this part is the protection of individual consumers engaging in electronic fund transfers.
Federal Deposit Insurance Corporation
General Counsel Opinion No. 8: Insurability of Funds Underlying Stored Value Cards
(published November 13, 2008)
Affirms that funds underlying stored value products (including payroll cards) are considered insurable deposits if they have been placed at an insured depository institution. The holder of the account (e.g., the employee) will be treated as the owner of the funds if the FDIC's standard requirements for pass through insurance are satisfied. Otherwise, the account holder will be deemed the owner.
Office of the Comptroller of the Currency Documents Related to Paycards
OCC Advisory Letter AL 2004-6 Concerning Payroll Card Systems
This advisory is in response to inquiries that the OCC has received from bankers and examiners regarding supervisory expectations for payroll card systems. Increasing numbers of national banks are offering payroll cards and other pre-paid payment services. The OCC has found that such activities are part of the business of banking. General background information on this new product, which can be particularly useful for serving persons without bank accounts, can be found in an analysis prepared by the OCC Community Affairs Department.
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State Regulation of Payroll Cards
California Division Labor Standards Enforcement
Opinion Letter No. 2008.07.07
The DLSE takes the position that payroll cards (at least the ones under review) involve both the direct deposit of wages and a means of accessing those wages using an electronic card. Accordingly, the program must satisfy the requirements set forth in Labor Code section 213(d) for direct deposit including the requirement that the employee participation be voluntary. In addition, the program must satisfy the requirements for payment using an acknowledgement of indebtedness under section 212(a) such as the requirement that wages be payable in cash on demand, without discount, at an established place of business in the state. According to the DLSE, one transaction each pay period without fees each pay period satisfied the requirement that wages be payable on demand without discount.
The DLSE has also issued an opinion letter on convenience checks drawn on payroll card accounts.
Colorado Legislature
SB 120 (Ch. 56 2008)
Effective August 2008
Amends section 8-4-102 of the Colorado Revised Statutes, and provides that an employer may deposit wages on a paycard so long as the employee (1) is provided a free means of access to the entire amount of net pay at least once per pay period, or (2) may choose to be paid using another authorized method of wage payment (e.g., cash, checks or direct deposit).
Delaware Department of Labor
Adopts Regulations on Payroll Debit Cards
CDR 65-400-013
Effective June 14, 2004
The Delaware Department of Labor has adopted regulations regarding payroll debit cards. The regulations allow employers to compensate their employees using payroll debit cards that are the functional equivalent of cash or a check.The regulations define "functional equivalent" to mean that the employee must have access to his or her full wages from the payroll debit card on payday without cost to the employee.
The Delaware Department of Labor has adopted final regulations regarding payroll debit cards. An employer may create a payroll debit card system to pay its workers as long as it complies with all of the substantive requirements of the Delaware Wage Payment and Collection Act.
Florida Legislature HB 569 (Ch. 140 2009)
Effective July 1, 2009
Amends section 532.01 of the Florida Statutes to include payroll debit cards on the list of permissible method of wage payment.
Hawaii Department of Labor & Industrial Relations Guidance: Payroll Debit Card Plans
Although Hawaii's wage payment statutes and regulations do not specifically address paycards or debit cards, the agency will permit their use provided a number of conditions, posted on the agency's website, are met. Among other requirements, participation in the program must be voluntary and agreed to in writing by the employee. In addition, the employee must be notified in writing that he or she may cancel the arrangement at any time with reasonable notice. The employee also must be able to withdraw and transfer the funds on the payroll card at least once each pay period without incurring a fee for doing so.
Iowa Workforce Development Department
The Department takes the position that payment using debit cards may not be made a condition of hire or employment.
Kansas Legislature
HB 2316 (Ch. 132 2007)
Effective July 1, 2007
The bill amends section 44-314 of the Kansas Statutes and allows employers to mandate electronic payments. Employers that wish to pay all employees by direct deposit must provide paycards as an alternative to employees who do not designate a bank for direct deposit. Employers that pay wages using a payroll card must provide at least one means of access to full wages each pay period without cost to the employee. Education is required when electronic wage payment methods are used.
Maine Legislature
HP 673 (Ch. 89 2005) Effective June 29, 2005 Amends section 663 of Title 26 of the Maine Revised Statutes, and provides that employers may pay wages through a direct deposit system, automated teller machine (ATM) card, or other means of electronic transfer as long as the employee can: (1) make an initial withdrawal of the entire net pay without additional cost to the employee; or (2) choose another means of payment that involves no additional cost to the employee.
Maryland Legislature
HB 751 (Ch. 573 2005)
Effective June 1, 2005
Amends section 3-502 of Maryland's Labor & Employment Law, and permits employers to pay wages via a debit card or card account if: (1) authorized by the employee; and (2) any fees applicable to the debit card or card account are disclosed to the employee in writing in at least 12 point font.
Michigan Legislature
SB 851 (Pub. Act No. 534 2004)
Effective January 3, 2005
Amends section 408.476 of the Michigan Compiled Laws to permit the use of payroll debit cards. The employee's written consent is required unless the employer paid at least one employee using payroll debit cards as of January 1, 2005. An employer may not require an employee to pay any fees or costs incurred by the employer in connection with paying wages by payroll debit cards.
Michigan Department of Labor and Economic Growth
Adopts Regulations on Payroll Debit Cards
Effective July 10, 2006
Adds Rule 408.9035 to the Michigan Administrative Code, permitting the use of payroll debit cards if certain conditions are satisfied. For example, the employee must be able to obtain wages in full when they are due and the cardholder, not the issuer or the bank, must possess ownership of the funds. In addition, certain disclosures of terms and conditions must be made, including possible fees, and specified records must be maintained when wages are deposited into a pooled account accessible to the employee using the payroll debit card.
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Minnesota Legislature
SF 2093 (Ch. 158 2005)
Effective June 3, 2005
Amends section 177.23 and adds section 177.255 to the Minnesota Statutes, permitting the use of payroll cards if a variety of conditions are satisfied. Among other things, these conditions relate to ownership of the funds deposited into the payroll card account, written disclosures that must be made by employers, written consent by participating employees, and limitations on permissible fees.
A sunset provision requiring the payroll card pursuant to which the payroll card sections would expire on May 31, 2007 was repealed by SF 2830 (2007-2008).
Montana Department of Labor and Industry
The Agency takes the position that direct deposit and payroll cards are permissible methods of wage payment under Montana law provided the employee voluntarily consents (i.e., opts in) to the program. An employer offering payroll cards must comply with the following requirements: (1) employees must have the option of receiving their full wages via check (or cash, if the employer prefers), without having to take extraordinary steps to obtain their check; (2) employees must consent to the use of the card; (3) the employer must provide clear and understandable guidelines identifying the charges associated with use of the card; (4) employees must be able to access the full amount of their wages, in cash, without incurring a fee in the initial withdrawal; and (5) employees must receive (either in writing or electronically) an itemized list of the deductions and authorized withholdings from wages. In addition, the Agency makes clear that an employer must honor an employee's request to revert back to paper paychecks.
According to the Agency, a program offering employees the choice between direct deposit and a payroll card only does not comply with the above requirements. This is true even if employees also are given the option of writing themselves a check drawn from the payroll card account.
Nevada Office of the Labor Commissioner
Adopts Regulation Addressing Electronic Wage Payment
Effective August 25, 2004
Adds section 608.135 to the Nevada Administrative Code to permit electronic wage payment including payment on a debit card, if optional at the election of the employee. The employee must be provided at least one free transaction each pay period, and the program may not include any restriction or requirement that a reasonable person would find to be an unreasonable burden or inconvenience.
New Hampshire Legislature
HB 611 (Ch. 299 2007)
Effective September 11, 2008
Revises sections 275:42 and 275:43 of the New Hampshire Revised Statutes to make clear that an employer may use payroll cards so long as employees are provided with at least one means of withdrawing the full balance from the card each pay period, at a financial institution or other location convenient to the place of employment, without any cost. Employee participation must be voluntary and may not be made a condition of hire or continued employment. Employers that offer payroll cards must comply with certain notice and disclosure requirements and must ensure that the payroll card account complies with the federal Electronic Funds Transfer Act and Federal Reserve Regulation E.
New Jersey Department of Labor and Workforce Development
Adopts Regulations Addressing Payroll Debit Cards
Effective October 6, 2008
Revises section 12:53-2.4 of the New Jersey Administrative Code to clarify that employers may compensate their employees using payroll debit cards provided the employee voluntarily consents in writing to this method of wage payment. Consent may not be made a condition of hire or continued employment, and may be obtained only after written disclosures regarding the terms of the program (including fees) have been provided to the employee. At least once each pay period the employee must be able to use the payroll debit card to withdraw his or her full wages without fees and without difficulty. Additional conditions also must be satisfied.
New York State Department of Labor
Opinion on Paycards / Debit Cards
Dated October 29, 2009
Under section 192(1) of the New York Labor Law, an employee must consent in writing to the direct deposit of wages. In this letter, the state Department of Labor expresses its position that payroll cards are a form of direct deposit and, therefore, that the payment of wages using payroll cards requires the employee's written consent. Employees must be provided with full notice of all of the terms and conditions of the payroll card program, and may not be required to consent to the program as a condition of employment or hire.
The Department also makes clear that, under section 191 of the Labor Law, the imposition of fees for services that are essential for an employee to access his or her full wages from a payroll card are prohibited. Examples of such fees include account maintenance fees, card issuance fees and fees for withdrawing wages. Fees imposed by a bank for incidental services provided to employees, such as the purchase money orders, electronic bill-pay and the use of the debit card at other institutions, are not prohibited. Finally, the Department emphasized that wages must be paid in a timely manner, employees must access to their full wages to the penny, and there may be no encumbrances that delay or limit an employee's access to his or her wages.
It is unclear from the letter whether every withdrawal must be without fees or only the initial withdrawal each pay period. The Department has stated that it will issue a follow up letter clarifying this point.
North Carolina Department of Labor
Fact Sheet on Debit/Payroll Card Payment
Dated August 30, 2005
The administrative enforcement position of the North Carolina Department of Labor's Wage and Hour Bureau is that paying employees by using payroll cards or debit cards is an acceptable method of payment so long as: (1) the employee can withdraw all amounts due on payday and (2) the one-time use of the card by the employee on payday is at no cost to the employee.
North Dakota Legislature
HB 1347 (Ch. 304 2005)
Effective August 1, 2005
Revises section 34-34-02 of the North Dakota Century Code to permit payment of wages using stored value cards issued by a federally insured bank or credit union. The funds underlying the card must be an insured deposit and employee participation must be voluntary.
Oklahoma Attorney General
Oklahoma's wage payment statute allows employers to pay their employees using "electronic means." 40 Okla. Stat. Section 165.2. According to the state Attorney General, this provision must be interpreted in accordance with the federal Electronic Funds Transfer Act (EFTA) and Federal Reserve Regulation E. As such, employers in Oklahoma may require direct deposit of wages but only if employees are allowed to select the financial institution that will receive the direct deposit. In addition, the funds must be redeemable by the employee upon demand, without discount, in lawful U.S. money. The Attorney General further opined that an employee cannot be compelled to receive salary through a payroll card account, but may consent to payment in this manner. The letter does not specifically address whether an employer may give employees the choice between receiving their wages by direct deposit or on a payroll card only, but does make clear that this issue would be resolved in accordance with the EFTA and Regulation E. Finally, the Attorney General opined that the statement of deductions (i.e., pay stub) that an employer must distribute to employees under Oklahoma law may be e-mailed to employee if the employee provides the employer with an e-mail address. Merely placing the statement on a website where the employee has to retrieve it is not permissible.
Oregon Legislature
HB 2556 (Ch. 546 2007)
Effective January 1, 2008
Amends section 652.110 of the Oregon Revised Statutes to provide that an employer and employee may agree to payment on a payroll card or other means of electronic transfer provided the employee may make an initial withdrawal of full wages without cost to the employee or the employee may choose another means of wage payment that includes no cost to the employee. The employee may revoke the agreement in writing.
Oregon Bureau of Labor and Industries
Direct Deposit Frequently Asked Questions
Payment of wages by debit card is legal, provided that requirements in section 652.110 are met. The employee and employer must agree to the arrangement. In addition, a payroll card must be negotiable and "payable without discount in cash on demand at some bank or other established place of business" in the county where it is issued. BOLI interprets this to mean that "the employee must be able to receive the full amount of his or her wages by swiping the card and may not be charged any fee for doing so."
Vermont Department of Labor
Frequently Asked Questions
The Department takes the position that an employer may not pay wages using a debit card. The wage payment statute (21 Vermont Stat. Section 343) requires that wages be paid in cash or check, as defined in the Vermont Uniform Commercial Code (UCC). According to the Department, a debit card does not satisfy the UCC definition of cash or check.
Virginia Legislature
SB 1264 (Ch. 728 2009)
Effectiver July 1, 2009
Section 40.1-29 of the Virginia Code permits payment using a prepaid debit card provided the employer fully discloses applicable fees to the employee in writing and the employee affirmatively consents to this method of wage payment. This bill amends section 40.1-29 to provide that an employer may pay employees hired after January 1, 2010 using electronic methods only. If such an employee fails to designate an account for direct deposit, the employer may pay the employee on a prepaid debit card without the employee's consent provided certain conditions are satisfied. For example, the employee must be able to make at least one free withdrawal or transfer per pay period for the full balance on the card.
West Virginia Legislature
HB 4032 (Ch. 129 2008)
Effective June 7, 2008
Amends section 21-5-3 of the West Virginia Code to permit payment by deposit or electronic transfer of immediately available funds into an employee's payroll card account in a federally insured depository institution. The employee and employer must agree in writing to payment using a payroll card.
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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.
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