The New York State Department of Labor (NYSDOL) recently finalized a new rule that significantly changes how employers pay their employees through direct deposit and payroll debit cards. Even though the new regulation does not go into effect until March 7, 2017, Empire State employers should begin preparing for the effective date now, especially for employees paid by direct deposit.

Requirements for Direct Deposit

New York employers are already prohibited from paying their employees through direct deposit without first obtaining the employees’ advance written consent. The NYSDOL’s final rule establishes additional requirements regarding what employers must do to secure such consent.

First and foremost, the form must be provided in English and in the primary language of the employee. In addition, it must contain:

  • A description of every method of payment available to the employee
  • A statement that the employer may not require the employee to accept wages by direct deposit or by payroll debit card
  • A statement that the employee may not be charged any fees or services that are necessary for the employee to access his or her wages in full
  • A list of locations, if offering payment of wages by payroll debit card, where employees can access and withdraw wages at no charge to the employees, within reasonable proximity to their place of residence or place of work

Additionally, employers must ensure that consent is obtained voluntarily, and cannot make consent a condition of hire or of continued employment. Employees must also be able to withdraw their consent at any time. Employers who opt to use any electronic notice and consent must ensure that employees have the ability to view the notice and consent in print without cost during working hours, and must notify the employees of that option.

Notably, the NYSDOL’s final rule differs in one key aspect from the proposed rule that was published in June – whether and under what circumstances employers need to secure new direct deposit authorizations from employees who previously executed authorizations. Under the proposed rule, all direct deposit authorizations that were signed prior to the rule’s effective date would have been invalidated. Under the final rule, however, authorizations executed before March 7, 2017, will remain valid if, and only if, the employees who signed the authorizations are given notices that comply with the requirements of the new rule.

Lastly, not all employees are subject to the NYSDOL’s new rule. Specifically, the advance notice requirements do not apply to persons employed in bona fide executive, administrative, or professional capacity earning at least $900/week, nor to employees working on a farm not connected with a factory. This is consistent with existing law.

Requirements for Payroll Debit Cards

The rule also imposes onerous new requirements for employers who pay their employees using payroll debit cards.

First, the written notice and consent must be signed by the employee and provided to the employer at least seven days before the employer issues the first payment. Second, the notice must contain a list of locations within a reasonable distance from the employee’s residence or workplace where employees can access and withdraw their wages without incurring any charges or fees. Additionally, an employer may not utilize payroll debit cards for wage payments, unless:

  • The employee has access to at least one ATM that offers withdrawals without any fees
  • The employee has at least one means of withdrawing the total amount of wages for each pay period or the entire remaining balance without incurring a fee
  • The payment of wages cannot be linked to any form of credit, including a loan against future pay or any cash advances based on future pay

Employers must maintain copies of the written consent form for the duration of the employee’s employment and for a period of six years after the employee is no longer employed.

The rule also prohibits employers, whether directly or indirectly, from passing along costs and fees associated with payroll debit cards, including but not limited to, application or initiation fees, declined transaction fees, charges for ordering replacement cards, or any other fee not explicitly identified by type and dollar amount in the contract between the employer and issuer, or in the terms and conditions of the payroll debit card provided to the employees.

What Does This Mean for My Company?

Employers should be proactive to ensure compliance with the new rule. They should review their current payroll practices and work with employment counsel to ensure that all employees are provided with new notices containing all of the newly required information.