Payroll Cards Continue to Get Legislative Attention

The topic of payroll cards is a hot one in the payroll services industry. As payroll service providers and electronic pay platforms work on new and innovative ways to get pay into the hands of workers, states are taking up the idea of restricting how payroll cards can be used. Dozens of states already have legislation in place while others are looking at legislation for 2017.

According to Bloomberg, there are now 27 states with rules in place to regulate payroll cards. Bloomberg lists Connecticut, Pennsylvania, and New York as three states where important developments are taking place right now. Employers not yet using payroll cards should take a step back and see how things play out this year (2017) before diving in.

Here is a brief summary of what Bloomberg says about those three key states:

  • Connecticut – Legislation was signed into law last fall, legislation that allowed companies to offer payroll cards on a voluntary basis. Rules include stipulations requiring employers to provide proper disclosure and give them access to paper checks and direct deposit if they prefer either choice over payroll cards.
  • Pennsylvania – Legislation was also signed into law in Pennsylvania in November and is set to be in full force by May of this year. Pennsylvania’s legislation requires free withdrawals. Meanwhile, a lawsuit challenging the validity of payroll cards is making its way through the state court system.
  • New York – Rules adopted in the Empire State in September 2016 were slated to go into effect in March 2017. But just weeks before implementation, the rules were found to have exceeded the state labor department’s official authority. They were subsequently scrapped.

The big issue with payroll cards is whether they meet the legal definition of ‘substantially equivalent’ or not. In other words, companies have the freedom to pay their workers by any means that is substantially equivalent to a cash or paper check payment. Questions surrounding the substantial equivalence of payroll cards have to do with fees and charges employees may incur by using them.

  • What It Means for Your Company

With 27 states already enacting some sort of legislation or statute pertaining to payroll cards, it is logical to assume that the remaining 23 will get on board at some point in the future. Companies being enticed to use payroll cards as a means of saving money or streamlining payroll processing need to take a step back and look at state rules before agreeing to go down that road.

Dallas-based BenefitMall says that direct deposit remains one of the best alternatives to paper checks and cash. The option is considered substantially equivalent in all 50 states, banks almost universally participate in it, and the process is efficient and cost-effective. Payroll cards are still too volatile except in states where regulations are clearly defined and relatively free of litigation risks.

  • Know Your Options

BenefitMall recommends companies know and fully understand all their options for paying employees. This is important whether company handles payroll in-house or outsources it to a provider such as BenefitMall. Ultimately, the employer makes the final decision regarding how workers are paid. Therefore, it is incumbent upon them to fully understand the implications of the option they plan to offer.

Payroll cards continue to get a lot of legislative attention. Common sense suggests they will be the source of plenty of litigation in the years to come. Perhaps it might be better for employers to stick with one of the other options until all the legal issues surrounding payroll cards are settled for good.