Payroll debit cards (or paycards) have been around for over a decade, but their prevalence has increased significantly as large employers like McDonalds and Walmart have adopted them.
Paycards work like credit cards or bank debit cards: every payday the employer loads the card with the employee’s net wages, and then the employee can choose either to (1) go to a particular bank (or in some cases, to a retail establishment) and withdraw the balance on the card or (2) use the card like a credit or debit card and either make purchases at retail locations or get cash at ATM machines.
Employers adopt paycards for their significant cost savings over paper checks. Paycards also provide employers with
- assurance that employees will receive their pay, even if there’s an office closure or natural disaster.
- assistance in complying with legal requirements for timeliness of termination pay, and
- advancement of “green” initiatives by reducing the amount of paper used as well as the energy needed to distribute paper paychecks (e.g., fuel for delivery trucks).
Employee also may benefit from using paycards, such as:
- no check-cashing and money order fees (although there may be other fees, see below);
- faster payment (cards generally load when the payday starts, not at the end of the day when paper checks may be distributed to workers);
- safety in payment (FDIC insurance covers amounts loaded on cards);
- replacement if lost without losing the balance that was on the card; and
- ability to make purchases or pay bills by phone, online, or by mail.
But the picture isn’t all rosy for employees. The biggest concern with paycards is the fees associated with certain kinds of transactions. The NY Times notes that “[t]hese fees can take such a big bite out of paychecks that some employees end up making less than the minimum wage once the charges are taken into account….”
Federal law prohibits an employer from requiring you to use a payroll card. [Employers] cannot require you to have an account at a particular bank or a card at a particular bank as a way of getting your wages.
Paper checks are likely to be eclipsed by modern technology, but whether paycards will be their long-term replacement remains to be seen.
For a detailed look at the use of paycards and their current regulation state-by-state, check out Understanding and Using Payroll Debit Cards by William Hays Weissman in the Summer 2013 issue of CEB’s California Business Law Practitioner. For help with payroll questions and virtually any workplace issue your clients may face, turn to CEB’s Advising California Employers and Employees.
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