Q: Frank owns a small manufacturing business with a facility in
Manchester. Several of his employees do not have checking accounts
and have complained that they have to use check cashing providers
on pay day to actually receive their wages. Frank is thinking of
implementing a payroll debit card system to remedy this situation
and is wondering whether such a system is legal under New
Hampshire's wage and hour laws.
In a time where businesses are constantly looking for ways to lower
expenses and shore up their bottom lines, a trend has emerged in
the way employers are paying their employees: the payroll debit
card, also known as the payroll card. Here's how payroll cards
work: the employee's wages are deposited into an account and
made accessible through a prepaid debit card, in lieu of receiving
a traditional paper check. The employer saves the expense of
distributing paper checks and employees without checking accounts
avoid the hassle of having to visit a check cashing location to
receive their wages, avoid paying check cashing fees, and gain the
ability to make purchases over the internet or by telephone. The
American Payroll Association estimates that each electronic payroll
payment will be $2.75 less expensive than a paper check payment. If
this sounds too good to be true, it likely is.
The reality is payroll debit cards carry unintended consequences
for both employers and employees and have caught the attention of
the government and opportunistic class-action plaintiff's
attorneys. For example, some payroll cards charge fees for routine
transactions like withdrawing cash and checking the card balance,
which could be considered unlawful deductions from wages. Other
employers have required that their employees receive wages through
payroll debit cards (and thus required them to be subject to these
fees), which, according to the federal Consumer Financial
Protection Bureau, violates the Electronic Fund Transfer Act and
its regulations. The practice of requiring workers to receive wages
through payroll cards and using cards that charge fees has also
lead to a class-action lawsuit in Pennsylvania by former McDonalds
employees, claiming that McDonalds' use of payroll cards
violated the Pennsylvania Wage Payment and Collection Act.
How to Avoid Running Afoul of Federal and State Law
While payroll debit cards are not per se unlawful, employers
must take certain steps in implementing a payroll card system to
ensure that they do not violate their worker's rights under
wage and hour laws. The New Hampshire wage payment statute (RSA
275:43) expressly authorizes payroll debit cards as a means of
paying employee wages, but places restrictions on how employers
must use the cards. For example, among other things, the employer
must: (i) provide the employee one opportunity per pay period to
withdraw the balance of the card for cash, without any fees or
expense, at a bank that is in close proximity to the place of
employment; (ii) provide employees with written disclosure of all
wage payment options, as well as all fees associated with a payroll
card; and (iii) provide employees with the option of using the
payroll card, and ensure that use of the card is not a prerequisite
to hiring or continued employment.
Industry analysts expect the amount of active payroll cards to
reach 10.8 million by 2017, up from 4.6 million in 2012. In
light of this growing practice and the risks it presents,
businesses thinking of using a payroll debit card system should
consider the following best practices:
1. Payroll cards must be an option, not a
requirement. This is without question the most important
aspect of using payroll debit cards. Employees must be presented,
in writing, with all the options for receiving their wages,
including traditional paper check, direct deposit, and electronic
fund transfer. Employers should not, and indeed cannot, make the
use of payroll cards a condition of hiring or continued employment.
Employees must also have the right to cancel their participation in
a payroll card program at any time, without penalty or delay in
payment of wages.
2. Full written disclosure of fees and card
conditions. Before agreeing to use a payroll card, the
employer must present the employee with a full written disclosure
of fees and other terms and conditions associated with the cards.
The employer must also provide written notice of any changes in the
payroll card terms or conditions.
3. Employee consent, in writing. As a corollary to
the requirement that payroll cards be an option and not mandatory,
the employer must also obtain the employee's written consent to
use the cards as a means of paying wages.
4. Access to full cash wages. Once per pay period,
the employer must allow the employee to access their full wages, in
cash and without any associated withdrawal fees, from a bank or
financial institution in close proximity to their place of work or
home.
5. Use a widely-accepted payroll card. Employers
should select a payroll card provider or brand that is widely
accepted at banks or retailers, and preferably one that
participates in a surcharge-free ATM network and carries deposit
insurance.
6. Train your employees on the payroll cards. When
presenting the employee with the written disclosure and option to
use the payroll card, employers should also explain to employees
how to use the cards.
7. Continue to provide wage statements. Using an
electronic method of payment does not relieve the employer from its
obligation under New Hampshire law to provide the employee with a
written statement of all deductions from gross wages for each pay
period.
8. Track the fees associated with payroll cards.
Employees should monitor the fees charged to employees for using
payroll cards to be sure that the total fees do not bring the
employee's hourly wages below the minimum wage.
In Frank's case, he should give his employees the option of
using a payroll card to receive their wages and if he follows the
best practices described above, his payroll card program will
likely satisfy the requirements of the New Hampshire wage statute
and both benefit the employees without traditional checking
accounts and improve his bottom line.
Published in New Hampshire Business Review
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.