Buying into the digital convenience offered by pay cards is easy for employers, but implementing safeguards is a big concern, an industry expert said June 24.
Establishing safeguards is especially daunting across multiple states, where a wider range of federal and state compliance issues have to be considered, said George Mavrantzas, vice president of strategy and thought leadership at ADP LLC.
Payroll debit cards allow employers to offer a benefit valued by some employees as providing convenience and flexibility, but complex compliance requirements require mindfulness of overlapping state, federal, and banking laws, Mavrantzas said.
Banking laws help ensure that employee card holders have access to information about their accounts, protection in the event of unauthorized use or insolvency, and the confidentiality of personal financial information, Mavrantzas said at the American Payroll Association’s 2020 Virtual Congress.
Federal wage and hour laws regulate the employment relationship and ensure, among other things, that employees are paid their full wages in a timely manner, Mavrantzas said, noting that generally federal compliance requirements supersede state requirements, particularly with regard to employee consent. State regulations govern permissible wage-payment methods, he said.
These elements affect pay cards and potentially introduce compliance risk, Mavrantzas said. Much of the federal and state compliance rules related to pay cards are to ensure that employees are not forced into a particular form of payment and that they are aware of all options and related terms, conditions, and fees.
Employee choice and consent are a big source of lawsuits, penalties, and compliance risk to employers, Mavrantzas said. Federal regulations prohibit employers from requiring employees to receive wages only using pay cards. Rather, employees must also be given a least one other payment option, he said.
About half of states appear to allow employers to offer employees the choice between direct deposit and a pay card without also offering a paper paycheck option, Mavrantzas said. In the remaining states, a paper paycheck option is required and often must be the default, he said. Some states require employers to offer direct deposit and a paper paycheck to employees who are offered payroll debit cards.
Federal and state wage and hour laws require employees to be paid their wages on the established pay day, Mavrantzas said. The full net wages of employees who elect to receive a pay card must be deposited into the card’s account by payday and must be available for use on that day, he said.
In most states, employees must be able to make at least one free withdrawal of up to their full net wages from the pay card account each pay period, Mavrantzas said. A few states require that the free withdrawal each pay period provide access to the full account balance as well, he said.
State wage and hour laws also often require employees to be provided with information about the pay card program, Mavrantzas said. Some states require employers to notify employees about all of their wage-payment options and explain how to access wages, and check account balances, he said.
“Keeping track of the nuances and changes here can be a real challenge to any employer,” Mavrantzas said, noting that field support and training are critical and should be retained for the life of the pay card program. The compliance landscape is always changing, so be prepared for those changes, he said.
Many states require that employees be provided access to their account balance online and over the telephone at no cost, Mavrantzas said, noting that the general rule is that consumers must have access to one free paper statement per pay period. “Again, 50 states, 50 different things to consider,” he said.
Termination pay is a sensitive issue, regardless of the form of pay, but timing and payment method are the key issues as it relates to pay cards, Mavrantzas said. Overcoming tricky issues, such as payment processing in another state, is paramount, he said.
How and when termination pay to the departing employee must be paid is regulated in 48 states and how termination pay is to be handled is written differently in 20 of those states, Mavrantzas said. In some states, a printed check must be presented to the employee on termination, he said. Even if an employee has consented to be paid by a pay card, this is the exception that employers need to be prepared to address, he said.