The payroll card is quickly becoming the preferred method of wage distribution for employers across the country, and for good reason: it's efficient, convenient and secure for employees. For employers, direct deposit payroll helps streamline payroll by eliminating the waste and cost of distributing paper checks. But as a relatively new form of payment, paycards are still undergoing vetting by local and national government. Employers must take care they comply with both federal and state wage laws, which are quickly evolving.
The national governance on wages (the Federal Labor Standards Act) does not specifically address paycard payroll systems (it was enacted in 1938). More recent federal legislation, the Electronic Fund Transaction Act (EFTA), does address direct deposit payroll systems. It mandates that:
Employers offer employees a choice about whether or not to enroll in direct deposit
Employees must be able to choose the financial institution where their wages are deposited
Employers must clearly outline fees associated with the paycard
Employers must also provide an alternative payment method, such as cash or check
At a state level, legislation is moving more quickly to addresses the increasingly popular paycard payroll system. So far, 19 states have adopted statutes to address payroll cards for employees. Here is a rundown of paycard laws by state: (Hastings, Paul. Paul Hastings 52 Jurisdiction Analysis: Permissible Methods of Wage Payment. N.p.: n.p., 1 Mar. 2013. PDF.)
If you missed our other payroll card legislation updates:
The state of Alabama offers no regulatory provisions for payroll cards. In fact, Alabama doesn't offer statutory or regulatory provisions on any wage payment categories, but instead defers to federal laws as outlined in the Fair Labor Standards Act.
There are no regulations specifically addressing payroll cards in Alaska. However, the state mandates that direct deposit enrollment must be voluntarily authorized by the employee and that wages be deposited into a financial institution of the employee's choosing. The state follows these same lines for payroll cards: It must be voluntary, and employees must also be offered the choice of direct deposit into their own bank accounts as well as a paper check, in addition to the payroll cards. Also, the agency advises that payroll card programs should allow employees access to their entire wage amount at least once a pay period without incurring fees.
Arizona does regulate payroll cards. Its statutory provisions say that employers can load wages onto a payroll card if an employee consents to it, or if an employee enrolls in direct deposit but does not designate a specific financial institution for deposit. Also, payroll card holders are entitled to at least one free withdrawal for each paycheck per pay period, but not more frequently than once a week. Arizona's payroll card regulations demand transparency as well, requiring employers to provide a list of all fees associated with payroll cards as well as give employees a written or electronic statement of their earnings and withholdings.
Arkansas does not regulate payroll cards specifically. However, state law states that employees can choose to opt out of direct deposit, and employers must honor all requests for a paper paycheck. The state treats payroll cards in much the same way.
There are no statutory and regulatory provisions specifically addressing payroll cards in the state of California. However, the state enforcement agency requires paycard payroll systems comply with certain sections of its Labor Code:
Employees have to voluntarily enroll in the programs.
Employees can choose to have wages deposited directly into an account they choose.
Deposits must be made with financial institutions that do business in California. These financial institutions must operate an electronic payment network in California, but does not require a physical branch or store. Visa—or Mastercard—member institutions satisfy this requirement.
Employees have access to their full wages, with at least one transaction per month that does not incur fees.
Stay tuned for more updates of paycard laws by state. At SOLE, we believe payroll systems should benefit employees and employers. Our payroll cards are free for employers to adopt, and we provide the marketing materials, in both English and Spanish, that outline clearly how our paycards work and any fees associated with them.