As a result of recent amendments to Arizona’s wage payment statutes (A.R.S. §§ 23-350 and 23-351) that became effective on July 20, 2011, employees who decline payment via direct deposit may now be paid their wages electronically using a “payroll card account.”  A payroll card account is “an account that is directly or indirectly established through an employer and to which electronic fund transfers of an employee’s wages are made on a recurring basis whether the account is operated or managed by the employer, a third-party payroll processor, a depository institution or any other person.”  

The amendments were passed in apparent response to inquiries regarding the legality of the State of Arizona’s existing practice of paying its employees through “Cash Pay Cards.”  Prior to passage of the amendments, in the absence of employee consent to payment by direct deposit, Arizona law mandated payment of wages in “lawful money of the United States, or in negotiable bank checks.”   With the amendments now in effect, employers still must obtain employee consent in order to pay wages through direct deposit.  In the absence of employee consent, however, employers may now pay employees electronically through the payroll card account mechanism.

In addition to establishing a payroll card account either internally or through an appropriate financial institution or payroll processor, the amendments spell out several additional requirements which employers must meet in order to take advantage of this new payment option.  For instance, employers who elect to pay employees through payroll card accounts must:

  • Provide each employee a written or electronic statement of his or her earnings and withholdings;
  • Permit employees at least one free withdrawal for each deposit of wages per pay period but not more frequently than once per week; and
  • Provide employees with a list of all fees associated with the use of an employer provided payroll card account.

Notably, the amendments to Arizona’s wage payment statutes provide virtually no guidance to employers as to how to establish a compliant payroll card account.  Employers should take care in implementing this new and possibly more convenient method of paying employees, however.  Failing to comply with A.R.S. § 23-351 can constitute a petty offense punishable by penalties of up to $1,000 per violation.