Payroll debit cards, or paycards, work similarly to credit cards or bank debit cards. Every payday, the employer loads the card with the net wages the employee is due to receive. The employee then has a choice to go to a bank and withdraw the entire sum, or to use the card as one would use a credit card or debit card at retail locations or automated teller machines. Depending on the manner in which a paycard is used, and the bank that issues the paycard, fees may attach to certain uses of a paycard. Because paycards offer a convenient method of payment to “unbanked” employees and avoid the administrative costs of issuing paper checks, payroll debit cards are increasingly used by many employers.
Payroll debit cards have not, however, been without their detractors. Paycards have been the subject of litigation in some jurisdictions, alleging that the cards are not akin to a paper paycheck and are thus not a valid method of paying wages. Additionally, acting out of a desire to protect employees from paying onerous fees, some legislators have proposed restrictions, or even outright bans, on the use of paycards.
It was in this context that, on August 7, 2014, Illinois Governor Pat Quinn signed into law H.B. 5622. The statute responds to both trends.
First, the statute amends the state’s Wage Payment and Collection Act (“the Act”) by providing that employers may pay wages on a “payroll card that meets” certain requirements. Under the prior version of the Act, employers were required to pay wages “in lawful money of the United States, by check, redeemable upon demand and without discount at a bank or other financial institution readily available to the employee, or by deposit of funds in an account in a bank or other financial institution designated by the employee.” A literalistic interpretation of the old provision might have led to the conclusion that payroll cards were not a permissible method of paying wages. The amended version of the Act makes clear that this is not the case: payroll debit cards are a perfectly permissible means of paying employees under Illinois law.
Section 14.5 of the amended Act also, however, cabins employers’ ability to pay wages via paycard. Among other things, the employer must do the following:
- provide “clear and conspicuous written disclosure” that payment by payroll debit card is voluntary and list at least one other method of payment available to the employee;
- provide employees with an itemized list of paycard fees that may be charged by the payroll debit card’s issuer and written notice that third parties may assess transaction fees in addition to the fees assessed by the paycard’s issuer;
- explain in writing how the employee may – without incurring fees – obtain all wages at least once per pay period and at least twice per month, have unlimited telephonic access to the account balance, and obtain at least one paper or electronic transaction history per month; and
- not use a paycard that charges fees for certain specified items, including point-of-sale transactions.
The amendments to the Act become effective on January 1, 2015. In the meantime, Illinois employers currently paying employees via payroll debit card must ensure that the issuing bank’s paycard meets all of Section 14.5’s many criteria and that the employer is prepared to meet its notice obligations.