For several years now, the use of payroll cards has been an emerging trend as a mechanism for paying employees their wages. A payroll card is a payment method that allows employers to pay wages to their employees via a reloadable prepaid card that essentially acts as a debit card.
However, the use of payroll cards has not come without its share of controversy, and that controversy surrounding the payroll card recently took center stage when a class action lawsuit was filed in Pennsylvania by a McDonald’s employee who was required to receive her wages on a payroll card. The employee complained of additional fees and costs she faced in order to withdraw cash and check her card balance.
In response to the lawsuit, the federal Consumer Financial Protection Bureau (CFPB) issued a bulletin cautioning employers that they cannot require employees to receive their wages on payroll cards. In other words, employees must have the ability to elect an alternative form of payment other than the payroll card. The CFPB also provided a list of requirements for employers to follow should they offer these payroll cards as an option. In particular, employers must provide employees clear details about the fees associated with the payroll cards. In addition, employers should be aware of the possibility that the fees associated with the payroll cards can effectively reduce an hourly workers’ pay below minimum wage, which could lead to potential Fair Labor Standards Act (FLSA) violations for employers.
The CFPB bulletin also indicates that employers desiring to use payroll cards must provide all required disclosures to employees regarding potential fees and costs associated with the payroll card. Employers are also advised to obtain advanced written consent from their employees to be paid by a payroll card and review any potential FLSA implications that could be triggered by use of the payroll card.
While payroll cards offer some administrative advantages to employers, they are not without their risks as well. If your company is using or considering using a payroll card option as a method to provide employees with their wages, we strongly suggest having legal counsel review the proposed program to assess its risks.