Payroll Cards Must Comply With Federal and State Law

In an era where technology equates with convenience, it’s not surprising that employers incorporate the latest technology in all facets of the workplace, including the way employees get paid. One way in which this is done is by issuing payroll cards instead of cash, check, or direct deposit. However, as is often the case with new technology and convenience, there is a downside. In this case the downside is that employees may get stuck paying fees to access their wages and employers risk legal liability if they fail to comply with federal and state law.

According to a September 2013 bulletin from the federal Consumer Financial Protection Bureau, Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer’s choosing. Regulation E permits an employer to require direct deposit of wages by electronic means if the employee is allowed to choose the institution that will receive the direct deposit. Alternatively, an employer may give employees the choice of having their wages deposited at a particular institution (designated by the employer) or receiving their wages by another means, such as by check or cash

That’s pretty clear guidance. But employers who seek to use payroll cards must comply with state law. I am currently serving as an expert witness on payroll cards in a class action lawsuit entitled Gunshannon et al., v. Mueller, et al. (Civil Class Action 7010 of 2013), pending in the Court of Common Pleas for Luzerne County, Pennsylvania. Here is a link to a PDF copy of my expert report. The named plaintiffs all worked at a chain of McDonalds in Pennsylvania and were forced to accept their wages via JP Morgan Payroll Debit Card. When the plaintiffs used the cards, they incurred numerous fees that diminished their wages. Supervisory level employees were given the choice of a check or payroll card, which demonstrates that the hourly employees were being treated differently and unfairly. More to the point, the employer’s conduct violated Pennsylvania law, which does not authorize payroll cards.

In Pennsylvania, the Wage Payment and Collection Act permits payment by “lawful money of the United States or check.” 43 P.S. § 260.3(a) (amended 1977). The Pennsylvania Banking Code extends that to include direct deposit when requested by the employee. 7 P.S. § 6121 (1975). Payroll cards are not lawful money (i.e., greenbacks) nor are they a check nor are they direct deposit when not requested by the employee. Other states have authorized payroll cards only after the legislature provided specific approval and some limitations, as in Florida in 2009. In states like Pennsylvania where the legislature has not authorized payroll cards, employers should think very carefully before mandating their use. Here is a link to a story in Forbes about the New York Attorney General’s investigation into the use of payroll cards. In all states, employers should comply with the CFPB’s guidance on the use of payroll cards.