Rise in Payroll Card Legislation Adds to Compliance Pressures

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By Kristin N. Washington  

With more legislation involving payroll cards introduced in 2014 than in any other year, employers need to comply with regulations to effectively implement these electronic wage-payment programs, a lawyer said May 7.

Many states have introduced legislation regarding restrictions on distributing payroll cards to employees. In turn, employers may be hesitant to introduce such programs because of a lack of overall clarity on how to properly maintain the programs.

“The law in some states isn't clear on what the requirements are and so until clearer guidance is given employers might be hesitant” to implement payroll card programs, said Cathy Beyda, of counsel for the law firm Paul Hastings.

High-Profile Lawsuit Sets Tone

Employers may be reluctant to issue pay cards because of a 2013 lawsuit in Pennsylvania. A restaurant employee, Natalie Gunshannon, filed a class action lawsuit against 16 McDonald's Corp. franchises in the state, seeking damages because of a payment structure that she claimed caused her and other nonmanagerial employees to receive less than the state's minimum wage after fees were deducted from payroll card wages. The lawsuit is pending.

The lawsuit raised alarms and led to some states proposing legislation to better regulate payroll cards, also known as payroll debit cards. Three or four states typically introduce legislation on payroll cards each year, Beyda said. In 2014, however, 22 bills were introduced in 17 states, Beyda said. “That is significantly more than we've seen in any other year,” she said.

Despite the negative reaction to payroll cards, the electronic wage-payment process is perhaps “the best way to guarantee that employees receive their pay and that wage payment is conducted in a timely manner,” Beyda said.

“One of the most important benefits to electronic wage payment is that employers can guarantee that wages are distributed to an employee on payday” even if the employee is not in the office on that day, Beyda said. “The beauty of payroll cards is it brings the benefits of direct deposit even to employees that can't otherwise participate.”

With an increase in legislation, employers should focus on clarity and compliance when using payroll card programs.

Some of the proposals, if approved, may create an arduous process for employers.

“In attempts to give employees a choice, some bills have said that if payroll cards are to be offered, an employee must be allowed to select any other form of payment, which would include cash,” Beyda said.

A look at some of the proposed legislation showed requirements based on misconceptions, such as fees associated with payroll cards, Beyda said.

“In the labor code, the employer's responsibility to employees is to provide full and free access to their wages and certain fees should be prohibited,” Beyda said.

“Once you start to require employers to pay for banking services that other people aren't entitled to on their bank accounts, then that [type] of legislation goes really too far,” Beyda said.

States Start to Take Charge

In Hawaii, the Department of Labor and Industrial Relations released a notice that is to suspend the use of payroll cards in the state starting Sept. 1, pending passage of H.B. 1814. Under the most current version of the bill, which was sent May 5 to Gov. Neil Abercrombie (D) for his signature, the use of payroll cards is to be authorized with restrictions, including that the employee be offered additional wage-payment options, payment approval without retaliation and the availability of program information before consenting to the arrangement.

Nebraska recently passed a law (L.B. 765), effective Jan. 1, 2015, favoring payroll cards as a wage-payment option. The law allows employers to pay wages by payroll debit cards if they allow employees a free withdrawal each pay period, up to once a week, for total net wages as provided on wage statements.

In Illinois, a pending bill (H.B. 5622) related to payroll cards would amend the state's wage-payment laws to provide payroll card requirements for employers and require disclosures, other types of wage payments and fee limits.

Publicly Available Guidelines

Employers should adhere to federal payroll card requirements under Regulation E and state-specific legislation, Beyda said. Employers also are responsible for providing information to employees regarding pay card programs, she said. “Employers should have clear disclosure that programs are voluntary. As long as disclosed and workers don't feel pressured to use pay cards,” she said.

Some beneficial resources for employers, which are publicly available, include the Network Branded Prepaid Card Association's employer guide and the American Payroll Association's payroll card portals, Beyda said. “An Employer's Guide to Payroll Cards,” by the NBPCA, includes the benefits of payroll card programs for employers and employees, wage statement requirements and additional guidance regarding payroll card program implementation,” she said.