Three Things Employers Should Know About Payroll Cards

Did you know that you may be able to arrange with a bank or other financial institution to pay your employees with a payroll card? In such instances, an employee’s pay is loaded directly to a payroll card rather than deposited to a bank account or provided in the form of a paper check.

Payroll cards can be convenient for both employers and employees, but it’s important to realize that these cards are subject to a number of requirements under the law. Keep in mind the following guidance from the federal Consumer Financial Protection Bureau:

1. Employers Cannot Require Payroll Cards

Under federal law, an employer cannot require an employee to receive his or her wages on a payroll card–the employer must offer at least one other alternative.

For example, employers may give employees a choice between direct deposit into a bank account, direct deposit to a payroll card, or a paper check. Permissible wage payment methods are governed by state law, so be sure to check your state’s requirements.

2. The Law Protects Employees

Federal law contains provisions specific to payroll cards that provide employees with certain protections, including:

  • Disclosure of Fees. Payroll card holders are entitled to receive disclosures of any fees they may incur. These disclosures must be clear, in writing, and in a form that holders may keep.
  • Access to Account History. The card issuer must either provide periodic statements or generally make card holders’ account balances and histories available in specified formats. The account history must include information on any fees imposed for fund transfers.
  • Error Resolution Rights. If a card holder reports a payroll card account error, the financial institution must respond so long as the report is received within a certain amount of time.

3. Other Laws Also Affect Employee Pay

Employers should be mindful that fees associated with payroll cards may have the effect of reducing hourly employees’ wages below the minimum wage, which may lead to potential penalties under the federal Fair Labor Standards Act and state minimum wage laws. Also, certain states may regulate or prohibit the use of payroll cards. Contact your state labor department for more information.

Our section on Employee Pay within the HR & Benefits Library in the Client Resource Center includes information on other issues related to employee compensation.

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