A growing number of employers are considering the institution of payroll card programs for their employees.  Employees’ wages are deposited into an account and accessible through a prepaid debit card.  This practice benefits both employers and employees.  It allows employers to reduce costs associated with paper checks and allows employees without bank accounts to obtain their wages without having to visit a check cashing location. 

Sounds like a win-win, right?  Not so fast.  A growing number of critics feel otherwise and both the federal and some states’ governments have made it a top priority to investigate employers’ payroll card programs taking great concern with both employee authorization and allegedly excessive fees. 

It’s therefore no surprise that Payroll Debit Cards have recently garnered the attention of both plaintiffs’ attorneys and legislators.  In June of this year, employees of a fast-food franchise launched a putative class action claiming they could not access their earnings without paying additional fees and costs.  They claimed the fees were improper wage deductions and, in some instances, brought their pay below minimum wage.  (This case is still pending and no substantive decisions have been ordered.) 

Then, in July, Senate Democrats urged the Consumer Financial Protection Bureau (“CFPB”) and the U.S. Department of Labor to clarify whether payroll card programs, which they deem “exploitative,” are in fact lawful.  Earlier this month, the CFPB issued a warning, which stressed that federal law prevents employers from mandating employee participation in a payroll card program and emphasized the need to provide clear details on what fees are associated with the payroll cards.

Until lawmakers instill clearer guidelines into this fairly unregulated landscape, employers should be sure to heed the CFPB’s guidance and comply with those regulations that are already in place.  A careful review of the wage payments laws in the states in which you operate is also suggested, because state laws vary greatly in this area.  For example, in New York, the Attorney General has written investigative letters and issued subpoenas to a number of employers requesting details on their payroll card programs. 

If you have implemented a payroll card program, or are considering one, here are some best practices tips to consider:

  • Options – Employees should not be forced to participate in a payroll card program.  Rather, employees must be given explicit options to receive their wages by way of payroll cards, direct deposit (if applicable), and a traditional paper check.
  • Consent – Employees must provide voluntary written consent, which cannot be a condition of hire or continued employment. 
  • Revocation – Employees must have the right to cancel, without penalty, their participation in the payroll card program.
  • Free Withdrawal – Employees must be able to obtain all of their wages, without fees, on their actual payday.  This free-fee option must be within a close proximity to the place of work or the employee’s home.
  • Disclosure of Fees – Employees must be given full disclosure (ideally, prior to their providing consent) of the fees associated with any potential transaction involving their payroll card.
  • Electronic Wage Statements – Like direct deposit, employees need to have the ability to obtain their paystub to view the applicable withholdings and deductions.  Note that in some states, employees need to have the option to print those wage statements at work.
  • Ability to Check Balance – Employees should be able to easily view their payroll card balance.
  • Review Fees Incurred – If an hourly employee is incurring fees that bring their wages below minimum wage, you should consider transferring that employee out of the payroll card program.
  • Beware of Employer Benefits – Aside from the basic cost-savings associated with moving away from paper checks, employers should be weary if their payroll card program provides them with any additional financial incentives.  Lawmakers are concerned that, while employees are incurring fees, employers are reaping financial benefits through their payroll card agreements.