Controversial Payroll Card Final Ruling Released
Issuing payroll cards in New York State recently became more difficult – and less profitable.
The New York Department of Labor (DOL) released its final ruling regarding Methods of Wage Payment on September 7, 2016, approximately two years after a highly critical report on payroll cards was published by the New York State Attorney General’s Office. The new regulations, which go into effect on March 7, 2017, include provisions far more stringent than industry standards and other states’ requirements, and also impose notice and consent requirements for payment of wages via direct deposit.
Under the final rules, New York employers will be required to:
- Provide workers paid by methods other than cash or check with:
- Obtain written informed consent from employees to accept payment of wages via direct deposit or payroll debit card;
- Wait seven business days before fulfilling an employee’s voluntary request to receive a payroll card, and in the interim, pay those employees with paper paychecks;
- Ensure that employees may withdraw up to the total amount of wages for each pay period or the balance remaining on the payroll debit card without the employee incurring a fee;
- Ensure local access to one or more ATMs that offer withdrawals at no cost to the employee located within a reasonable distance to the employee’s home or place of work; and,
- Give employees written notice thirty (30) days before any changes in the terms and conditions of a payroll debit card take effect, in the employee’s primary language or in a language the employee understands.
Employers are prohibited from charging employees any fees (directly or indirectly) related to their use of payroll debit cards or passing on the employer’s costs associated with a payroll debit card account to its employees. The regulations outline specific fees that may not be charged (see Figure 1) and also stipulate that payroll cards may not be linked to any form of credit (i.e., a loan against future pay or a cash advance on future pay). Further, employers must ensure funds on the payroll card will not expire.
Figure 1: NY Payroll Card Fee Restrictions
The new regulations have significant implications for New York employers—particularly those with payroll card programs—as well as payroll card providers and the 200,000 New York employees who currently receive their wages via payroll card.
- Employees who receive their wages via payroll cards may see benefits in the form of increased transparency, improved cash access, and potentially lower fees.
- Employers will face increased regulatory burdens and compliance costs. Employers who pay New York employees via payroll cards will need to review their existing program to determine what (if any) changes they will need to make to their programs before March 7, and some may choose to discontinue their programs.
- Payroll card program managers may need to adjust cardholder fee schedules, as well as ATM access agreements and other cash access options. Program managers will likely bear most of the financial impact of the new regulations, in the form of increased costs and severely restricted revenue options.
New York’s regulations attempt to curb abusive practices by employers and payroll card program managers, so consumers may come out ahead. Payroll debit cards provide a number of cardholder benefits, however, including safe storage of wages, access to the electronic payment system, and avoiding check cashing costs. If these new regulations limit payroll card issuing in New York, unbanked employees may be driven to more expensive alternative financial services.
The long term effect of the stringent new regulations on employers, payroll card managers, and the future growth of payroll cards in New York is unclear, although other states and the industry at large will be watching closely.
For more information, please contact Melissa Fox, Senior Manager, firstname.lastname@example.org; or Caleb Marley, Analyst, email@example.com. Both specialize in Payments Strategy and Innovation.
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