Payroll cards (i.e., debit cards onto which employee wages can be loaded) provide an alternative to more traditional forms of wage payment such as paper checks or direct deposit. Payroll card programs can offer cost-saving benefits to employers as well as benefits for employees, especially those who do not have personal checking accounts. These benefits to employees may be offset, however, if payroll card programs include fees or place limitations on employees’ ability to access their wages or administer their accounts. These limitations can be particularly problematic for lower-wage workers (who represent the vast majority of employees paid in this fashion).
Over the past several years, New York Attorney General Eric Schneiderman has been examining these issues. This review culminated in the issuance of a report in June 2014 detailing potential problems with payroll card programs and proposing legislation to address these issues. The proposed Payroll Card Act was introduced in the New York State Legislature at the request of Attorney General Schneiderman but was not acted upon prior to the end of the legislative session last month. On May 27, 2015, however, the New York State Department of Labor, perhaps anticipating that the legislature would not act prior to the end of the session, published proposed rules governing the payment of wages by payroll cards.
Key Provisions of the Draft Rules
Under the draft rules, an employer may pay an employee’s wages via a payroll card only if the employee expressly consents to payment in this manner. Employers are prohibited from pressuring an employee in any way to consent to payment by payroll card (including by making consent a condition of hire or continued employment or retaliating against an employee who does not consent). Employers also may not receive any kickbacks from a payroll card issuer for delivering wages by a payroll debit card.
In addition to ensuring consent, the draft rules are primarily aimed at promoting access and transparency.
Several provisions are aimed at ensuring that employees have convenient and free access to the full amount of their wages. Specifically, for a payroll card program to be permissible:
- Employees must have access to a network of ATMs from which withdrawals can be made free of charge;
- There must be at least one method by which employees can withdraw their entire net pay and/or card balance without a fee;
- Employees may not be charged a fee for, inter alia, initiation, participation or loading of the card; account inactivity; account maintenance; point of sale transactions; overdrafts, shortages or low balance status; card replacement at reasonable intervals; telephone/online customer service; accessing basic balance and other account information; or closing the account;
- Protections must be in place to freeze an account and provide reimbursement (as appropriate, following an investigation) if a payroll card is reported lost or stolen; and
- The payroll card account may not be linked to any form of credit (such as loans against, or advances on, future pay).
The draft rules also contain a number of transparency requirements in respect of both the terms and conditions of payroll card programs and individual information about employees’ accounts. Employers are required, for example, to:
- Provide written notice of key terms and conditions of the payroll card program at least seven (7) business days in advance of seeking an employee’s consent to be paid via a payroll card (including fees, methods to access wages or check balance information without incurring fees) and provide at least 30 days’ advance written notice of any changes in such terms and conditions; and
- Upon the request of an employee, provide periodic account statements, transaction history and balance notifications.
Comparison to Proposed Law
The agency’s proposed rules track, in many respects, the requirements of the proposed Payroll Card Act, but there are some key differences. Most notably, the Payroll Card Act would include a number of measures to protect employees’ privacy, including (i) that the payroll card account be held at a depository institution or other entity that has a written program to detect, prevent, and mitigate identity theft and (ii) that employers may not receive, accept, maintain or possess information regarding an employee’s card transactions or retaliate against an employee based on the same. In addition, the Payroll Card Act would require, unlike the draft rules, that payroll card accounts be fully insured (e.g., by the FDIC).
While the draft rules are largely consistent with the agency’s longstanding enforcement positions, there are some administration issues for which employers should prepare. Most notably, as discussed above, employers may not seek consent to pay by payroll debit card until seven business days after a written statement of program terms is provided to an employee. Practically, this likely will mean that an employee cannot be asked to select a method of payment on his/her first day of employment (as is common practice). Depending on an employer’s payroll schedule, paper checks may need to be generated at least for the first pay cycle (and possibly thereafter if an employee’s consent is not promptly obtained following the 7-day waiting period). This requirement may be problematic for employers seeking to avoid the costs and administrative burdens associated with generation of paper checks.
How to Prepare
The rules could be issued in final form as soon as July 13, 2015 (the first business day following the end of the 45-day comment period). While changes in response to public comments are possible, it is likely that the requirements largely will track those set forth in the draft rules. In light of this, employers should examine their existing payroll card programs to determine the degree to which they comply with the draft rules and to identify what steps would be necessary to achieve compliance. For example, if the program currently includes fees that are prohibited under the draft rules, employers should seek to rectify this through negotiation with the payroll card issuer. Similarly, appropriate notices of program terms should be developed and, if employees have not previously consented in writing to payment by payroll card, a mechanism should be put into place to obtain such consent for continued payment in this fashion.