|
|
|
| Issue: |
Your company would like to eliminate paper payroll checks. Electronic payrolls are more efficient, reduce costs and avoid the problems related to lost or stolen checks. Your company already offers direct deposit, but many hourly and part-time workers do not have bank accounts. You’ve heard that some employers offer payment through stored-value payroll debit cards. Is this option legal in your state? |
 |
|
|
Answer: |
In the past year, eight states have passed laws or adopted regulations that expressly authorize the use of payroll debit cards. Most other states permit direct deposit and probably allow some form of payroll debit card, but there may be restrictions.
A payroll debit card works like a phone card or personal stored-value card issued by Visa or Mastercard. Employees’ net pay is loaded on to the card, and they may take that card to an ATM and use a PIN to withdraw cash. With an international-brand card, workers also can make purchases, wire transfers to family members and add additional value to the cards.
With a stored-value card, employees do not need separate checking or savings accounts. Consequently, financial institutions, card issuers and payroll services tout their convenience for employees who do not have personal bank accounts or credit cards and often depend upon expensive check-cashing services.
State rules. The eight states that expressly approve use of payroll debit cards are: Delaware, Maine, Maryland, Minnesota, North Dakota, Michigan, Nevada and Virginia. However, employees must accept this option voluntarily and usually are entitled to make at least one free withdrawal up to the full amount. Employers also should advise workers of any fees.
Eight additional states have no law regulating the method of payment: Alabama, Louisiana, Nebraska, North Carolina, Ohio, Oklahoma, Washington and Wisconsin. The laws of Mississippi, Missouri and Tennessee similarly place no restrictions on electronic payments. In these 11 states, employers may use payroll debit cards, even on a mandatory basis.
Iowa, South Dakota and Texas broadly allow employees to agree to forms of payment other than cash or check. On the other hand, laws on the books in Hawaii, Kentucky and the District of Columbia arguably still require payment in cash or by check. Pennsylvania law permits other forms of payment as authorized by regulation, but no such regulation exists.
Twenty-seven other states expressly authorize some form of electronic funds transfer or direct deposit of employees’ pay. However, nearly all of these statutes contemplate transfer to an employee-designated account at an established bank, savings and loan, credit union or other approved financial institution, sometimes within the state.
Payroll debit cards may be acceptable in these states, if the accounts are set up at a qualifying financial institution. Accounts could take the form of an independent account for each employee or a master company account with employee sub-accounts. However, the latter arrangement may offer only limited insurance protection for the employees.
Source: CCH WAGE HOUR COMPLIANCE GUIDE, ¶3061 through ¶3113. |
|
|
