Payroll Card: Cost Control or Legal Black Hole?

October 2, 2013

Practical Law company logoExpenses associated with printing and distributing paper checks to employees can be substantial. To cut costs, some employers have looked to payroll cards. Payroll cards enable employers to make wage payments to employees electronically by adding to the balance on the card, avoiding paper check costs altogether.

However, employers interested in using payroll cards should be aware that the practice has generated negative attention because of the possible adverse consequences for employees. A number of institutions providing payroll cards impose fees associated with a variety of transactions. Those fees threaten to reduce employee salaries to such an extent that employee wage payments may ultimately fall below federal or state minimum wage or overtime requirements.

The federal government is taking note. Not only are members of the U.S. Senate inquiring into the practice, but more recently, the agency established to serve as a consumer watchdog, the Consumer Financial Protection Bureau, issued a cautionary bulletin. It indicated that employers are in violation of Regulation E, which implements the Electronic Funds Transfer Act (EFTA), if they mandate the use of payroll cards. As a result, employers must take a hard look at whether the continued use of payroll cards is the right fit for their needs.

In the Practical Law Expert Q&A article linked below, Ballard Spahr LLP attorney, Patricia A. Smith, addresses key questions employers may have about payroll cards.

Expert Q&A on Payroll Cards: Practical Tips for Employers