The New York State Department of Labor (“NYSDOL”) recently announced that it had published proposed regulations (“Proposed Regulations”) governing employers’ use of payroll debit cards as a permissible method of wage payment. These Proposed Regulations follow similar attempts earlier this year by New York Attorney General Eric Schneiderman and legislators to regulate the use of payroll debit cards for the payment of wages.
Prelude to the Proposed Regulations
According to a 2013 research report by Forbes, U.S. employers pay an estimated 5.8 million workers through the use of payroll debit cards. In New York State, an estimated 13,000 businesses pay wages to approximately 200,000 workers through the use of payroll debit cards. The growing use of payroll debit cards is attributed to the significant cost savings that an employer may achieve by paying employees with debit cards instead of paper checks. According to Visa Inc., an employer spends approximately $0.35 making a deposit on an employee’s payroll debit card, while the same transaction costs as much as $2.00 if the employer uses a paper check. Moreover, payroll debit cards allow employees without bank accounts to receive quick access to their funds.
After getting complaints from employees about receiving their wages through payroll debit cards, the New York State Attorney General’s office began reviewing the use of payroll debit cards within New York State. Following this review, the Attorney General’s office published a report in 2014 (“Report”) discussing:
- the accessibility of wages through the use of payroll debit cards without incurring fees,
- the amount of information employers provide to employees regarding where to obtain wages from the payroll debit card without incurring a fee, and
- the ability of employees to obtain wages through other forms of payment.
Further, the Report provided various recommendations for reforms to address the specific concerns highlighted by the Report. As a result, the Attorney General introduced a bill in February of this year addressing many of these concerns.
The Proposed Regulation’s Requirements
With the Attorney General’s legislation still pending, the NYSDOL announced the Proposed Regulations related to payroll debit cards, which will take effect following a notice and comment period, which is scheduled to end on July 31, 2015. These proposed changes create new requirements for employers that wish to use payroll debit cards to pay employees. The Proposed Regulations would require an employer to obtain “informed consent” from all employees before establishing payroll debit cards as a form of payment. In particular, consent must be obtained without “intimidation, coercion, or fear of adverse action by the employer for refusal to accept the payroll debit card or payroll debit card account.”
The employer must provide employees with certain information in writing at least seven days prior to obtaining consent. This written notice must contain a description of all options for receiving wages and a statement regarding an employee’s rights related to obtaining wages without incurring fees. Employers also would not be able to require employees to participate in the payroll debit card program as a condition of hire or of continued employment.
Once an employer has provided sufficient notice and obtained consent, the Proposed Regulations would additionally require the employer to ensure that its employees will not be charged, directly or indirectly, any fees in order to withdraw wages from the account. This restriction includes any fees related to overdraft, shortage, low balance status, account inactivity, maintenance, and customer service. If the issuers of the payroll debit card change the terms or conditions, an employer must provide additional notice to employees and potentially repay any fees if adequate notice is not provided.
What Employers Should Do Now
Although the proposed regulations are still in the notice and rulemaking phase, once the Proposed Regulations take effect, employers in New York State should:
- review any fees associated with the payroll debits cards to ensure that employees will not incur fees when accessing wages,
- review the payroll debit card network to ensure that employees will have access to wages through in-network ATMs and adequate access to customer service,
- prepare a compliant notice to provide to employees regarding payroll debit cards, and
- train human resources personnel and payroll departments to provide the proper notices and obtain the proper informed consent before beginning payment through payroll debit cards.