For years, employers have looked for ways to implement a one-size-fits-all paperless (all electronic) pay system for paying employees’ wages.

While direct deposit is a good option, there are very few states that allow an employer to implement direct deposit if an employee does not agree. Florida is not one of those states. Even still, in the few states that do allow employer-required direct deposit (e.g., Indiana), federal law requires an employee be allowed to choose the financial institution receiving the funds and state laws impose other strict requirements.

Now that paycard offerings are becoming increasingly more available, can employers finally go fully paperless?

What is a “paycard?”

A paycard or payroll card is similar to a prepaid debit card. On payday, the employee’s pay is electronically deposited onto a card issued in the employee’s name.  The employee keeps the same card and can withdraw up to the full amount of pay at an ATM or bank. The employee may also use the paycard for purchases, to pay bills or to transfer money to other accounts.

Unlike direct deposit, an employee doesn’t have to have a bank account to use a paycard – eliminating the need to issue paper checks to employees who are stuck in the Middle Ages.

Sounds great, right? Paycards are a great option for paying employees’ wages but they cannot be the only option. Here are some “must knows” before you begin moving (closer) to a paperless pay system.

  • First, employees must be given a choice as to whether to receive pay by paycard.  Under federal law(Regulation E implementing the Electronic Fund Transfer Act), an employer cannot require an employee to receive wages by paycard. If an employee chooses to receive their wages by paycard, certain requirements under federal law must be met, including clear, written disclosure of fees, access to account history, limited liability for unauthorized use and error resolution rights for errors associated with use of the card.
  • Second, employers should ensure that employees are able to access the full amount of pay on their card at least once per pay period at no charge to the employee. Assessing employees a fee to use the paycard or access money on the paycard could be problematic. Among other issues, the imposition of fees could bring an employee below the minimum wage.
  • Finally, employers must tread carefully if they employ workers in multiple states.  The majority of states have their own laws governing the use of paycards. Many include specific requirements that must be met in order for an employer to pay via paycard. In Florida, among other requirements, an employer paying via paycard must have sufficient funds or credit on the paycard for at least 30 days so that the card can be cashed out without a discount or fee.

The takeaway – while paycards may make paying employees administratively easier, ensuring full compliance with both federal and state laws is key. It is a good idea to seek guidance from employment counsel before implementing a multi-state paycard program.