Why it matters

Just prior to the March 7 effective date, the New York State Industrial Board of Appeals (IBA) revoked the New York State Department of Labor (NYSDOL) regulations on the use of payroll debit cards, declaring the regs invalid. The NYSDOL adopted final regulations last year regarding permissible methods of payment for most non-exempt employees. The regs required employers to obtain written, informed consent from employees for the use of any method of payment except cash or check (such as direct deposit and payroll debit cards) and to ensure that employees are not charged fees for access to their payments. But the IBA said the agency overstepped its authority by extending its reach into the realm of banking law. In addition, the decision noted that at least eight bills on payroll debit cards were introduced in the state legislature in recent years, with none enacted. "The legislature's failure to amend the statute demonstrates their satisfaction with the current statutory language or their inability to reach consensus on the manner in which payroll debit cards should be regulated under the Labor Law, if at all," the IBA wrote.

Detailed discussion

Last September, the NYSDOL adopted final regulations regarding the permissible methods of payment for most non-exempt employees. Scheduled to take effect March 7, the regs mandated that employers obtain written, informed consent from employees for the use of any method of payment except cash or check (such as direct deposit and payroll debit cards) and ensure that employees are not charged fees for accessing payments.

The new regs defined a "payroll debit card" and provided detailed instructions regarding payments by this method, from the notice that must be provided to obtain an employee's consent to be paid by payroll debit card (including a statement that accepting wages by this method is not required) to ensuring local access to one or more automated teller machines at no cost for employees.

In addition, the regulations prohibited employers and their agents from charging (directly or indirectly) specific fees to employees, including fees for opening or closing an account; account inactivity or overdraft, shortage or low balance status; certain declined transactions; and access to account or balance information and customer service.

In response, payroll debit card vendor Global Cash Card filed a petition with the state's IBA for review of the regs, alleging they were invalid or unreasonable because they exceeded the NYSDOL's authority and violated separation of powers between the executive and state legislature and because they were preempted by federal banking law.

The IBA agreed, striking down the new regulations as invalid.

While state labor law provides the Commissioner of Labor with the power to "issue such regulations governing any provision of [the Labor Law] as he finds necessary and proper," the regulations at issue overstepped the bounds by regulating banking services and "placing restrictions on financial institutions," the IBA wrote.

Existing law does not prohibit payment of wages by payroll debit card with an employee's consent because the statute allows for payment by direct deposit of wages into a bank or other financial institution, which includes a payroll debit card to which wages may be directly deposited legally, the agency said. Prior opinion letters from the NYSDOL permitted payment by payroll debit card as long as certain conditions were met.

But the new regulations went too far. "The regulations, by prohibiting all fees associated with use of a payroll debit card, depart significantly from the plain language of the statute and respondent's prior position on the subject," according to the decision, and the "prohibitions against fees charged by and other activities of debit payroll card vendors and issuers is not within her purview."

The New York Department of Financial Services regulates banks and financial institutions in the state and the fees they may charge for banking services, including fees related to checking accounts to which employers may directly deposit wages legally, the IBA said.

"We find the fees associated with use of a payroll debit card are similar to fees associated with checking accounts and licensed check cashers, and, therefore, are not subject to regulation by respondent," the agency wrote. "Because the statute already allows employers to pay wages by payroll debit card with an employee's consent, the regulations are invalid to the extent they prohibit otherwise lawful conduct by financial institutions for providing banking services. Restrictions or requirements placed on the employer that are consistent with the statute are, of course, valid, but these regulations go beyond regulation of the employment relationship and into the area of banking law, which is outside respondent's competence and expertise in the regulation of employment and occupational safety and health."

The IBA found its conclusion strengthened by the fact that at least eight pieces of legislation on subject matter identical to the regulations have been considered by state lawmakers since 2007, demonstrating the legislature's "satisfaction with the current statutory language or their inability to reach consensus on the manner in which payroll debit cards should be regulated under the Labor Law, if at all."

Recognizing that the NYSDOL "has a well-founded concern that low-wage workers without access to traditional bank accounts will be coerced by their employers to receive their wages by payroll debit card at a significantly lower payroll cost to the employer, and that employees paid by payroll debit card may be subject to excessive or hidden fees when accessing their wages," the agency said it still had to revoke the regulations. "While these fees may be excessive in respondent's view and disproportionally impact the most vulnerable workers in the state, [the Commissioner] does not have authority to act in this area."

To read the resolution of decision in Global Cash Card v. Commissioner, click here.