Payroll cards are an economical alternative to the traditional payroll delivery methods of paper checks or direct deposit. Cards are issued by payment processors such as Visa, which allows workers to use them almost anywhere and access their money from an ATM or cash back purchase like debit and credit cards.
Financial services consulting firm Aite Group reports that businesses paid out more than $30 billion worth of wages with payroll cards in 2012 and that number has been growing since. Businesses use the cards as an economical way to process and distribute payroll and eliminate paper payroll checks that are expensive to print and distribute and are vulnerable to fraud. Direct deposit is an excellent and economical paperless solution for payroll but only if employees have a bank account. Payroll cards are the next best thing for employees who don’t.
While payroll cards provide a cost-savings solution for employers, they can be problematic for the employees to use because of associated fees. While the employer usually pays nothing for the cards, the employee may encounter monthly maintenance fees, ATM fees, customer service fees, point-of-sale fees and overdraft fees. These can add up, especially for low income workers who may already be struggling financially. For these reasons, it is a violation of the law in many states to require an employee to use a payroll card without offering a paper alternative as well.
The New York attorney general's office is investigating large employers including Time Warner Cable, Walmart, Darden Restaurants, and Home Depot for allegedly pushing employees too hard to accept payroll pay cards according to Bloomberg. Legislators are also getting involved in payroll pay card protections, concerned about workers getting fee-free access to their wages. Senators led by Connecticut Senator Richard Blumenthal, New York Senator Chuck Schumer, and Virginia Senator Joe Manchin are urging Consumer Financial Protection Bureau and Department of Labor action on payroll card fees and employer pressure on employees.
A 2013 class action lawsuit in Pennsylvania brought by restaurant employee Natalie Gunshannon against 16 McDonald's Corp franchises prompted closer attention to the issue. Gunshannon claimed that pay structure caused non-managerial employees to get less than minimum wage after fees to access wages earned.
Gunshannon’s lawsuit raised awareness of concerns with payroll paycards and prompted better regulation. 22 bills were introduced regarding payroll paycards in 19 states in 2014, a significant increase. This year, bills have been introduced in Colorado, Connecticut, Florida, Iowa, Minnesota, New York, and Washington. Some of the legislation is problematic, such as proposals that employers pay the fees for access, where they don’t have to pay bank fees for other types of payroll.
Hawaiian law passed last year that shifts the cost of ATM fees from workers to employers takes some of the economic savings out of paycards for payroll. It requires that employees get at least three free withdrawals per pay period from their paycard pay accounts, and that employers have to provide employees information about payroll cards in advance, including a schedule of fees.
Employers should pay attention to compliance with federal payroll card requirements as well as their state-specific legislation. They should remember that they are responsible for providing information to their employees when they initiate pay card programs, including clear disclosure that the programs are voluntary. The Network Branded Prepaid Card Association’s employer guide, “An Employer’s Guide to Payroll Cards,” is a good resource that has guidance for employers regarding payroll card program.
Overall, paycards can be a very beneficial program for employers and employees, as long as the guidelines and fees associated with use are clear to both parties. PAYDAY has the capability to offer paycards to your employees. Contact your dedicated account rep or a salesperson to learn more about this service.
PAYDAY Workforce Solutions provides a single database SAAS solution for Human Capital Management (HCM) including payroll, human resources, time management, benefits administration and onboarding to companies of all sizes and in various industries.
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