With a payroll card, employee pay is loaded directly to a card rather than deposited to a bank or issued by check. The employee uses the card much like a debit card to make purchases, pay bills, or even access cash at ATMs.
Payroll cards can be convenient for both you and your employees, particularly those who don’t maintain bank accounts. However, employers utilizing these cards are subject to a number of requirements under the law, including the following guidance from the federal Consumer Financial Protection Bureau:
1. First, under federal law, an employer can’t require an employee to receive his or her wages on a payroll card—the employer must offer at least one other alternative. For example, employers may give employees a choice between direct deposit into a bank account, direct deposit to a payroll card, or a paper check. Permissible wage payment methods are governed by state law, so check your state’s requirements.
2. Second, federal law contains provisions specific to payroll cards that provide employees with certain protections. For example, payroll card holders are entitled to receive disclosures of any fees they may incur. These disclosures must be clear, in writing, and in a form that holders may keep. The card issuer also must either provide periodic statements or generally make card holders' account balances and histories available in specified formats. The account history must include information on any fees imposed for fund transfers. Additionally, if a card holder reports a payroll card account error, the financial institution must respond so long as the report is received within a certain amount of time.
3. Finally, other laws also affect employee pay. For example, fees associated with payroll cards may have the effect of reducing hourly employees' wages below the minimum wage, which may lead to potential penalties under the federal Fair Labor Standards Act and state minimum wage laws. Also, certain states may regulate or prohibit the use of payroll cards. Contact your state labor department for more information.
To learn more about paying employees, and a variety of other HR and benefits management issues, visit us online at HR360.com.