Paying It Forward?
While payroll debit cards certainly aren't new, they're quickly growing in popularity among employers and receiving attention from the courts. Critics say such payments often involve hefty fees for employees.
By Jill Cueni-Cohen
The next generation of workers won't know how to write a check … because the day is coming when checks simply won't exist, says Jill Goebel, senior business leader of Visa USA Prepaid Products. Based in the company's Chicago office, Goebel confirms the fact that electronic pay methods are on track to edge out paper standards, including checks and cash.
If you're not already paying your workforce via payroll cards, you should be, says Goebel.
"Payroll cards are an alternative electronic pay method complimentary to direct deposit," says Goebel. "The intent is to move employees who are paid by check onto one or the other means of electronic wage payment."
In its efforts to reduce the costs associated with paper checks, the U.S. government has been at the forefront of electronic payment, Goebel notes, pointing out that nearly half of all states are now disbursing child support, welfare and disability payments via electronic means. "Government employees are paid all electronically, and the private sector wants to follow suit for the same reasons: it's efficient, it reduces costs, and it's a superior wage payment method, because it provides so many more opportunities than a paper paycheck does."
The American Payroll Association has assessed 25 "green" states that have enacted laws or interpreted their laws to provide only electronic means of pay, allowing employers to eliminate paper options, says Goebel, adding that the electronic trend is gaining momentum as employees learn to embrace the technology. However, until all 50 states go green, payment by check will have to be offered as an option.
A lawsuit was recently filed in Pennsylvania against a McDonald's franchise owner by a former employee who said she was given no other option than a payroll card to access her paycheck. The plaintiff says the card had a variety of onerous fees, and this reduced her actual paycheck to below minimum wage.
William Hays Weissman, a shareholder in Littler Mendelson's Walnut Creek, Calif. office, says his firm is representing the McDonald's franchise owner in this particular case, so he can't speculate on the outcome of the case, but he recalls one company which uses a YouTube video to teach employees about how to avoid fees and proper use of the cards.
"Do it from a positive spin," Weissman advises. "Tell employees about all the ways to use their card without fees. Add that extra step in an affirmative manner. I think the biggest issue always comes down to education and messaging."
Charles Pautsch, a partner at Arnstein & Lehr's Chicago office and chair of the firm's labor and employment practice, says he recalls the days when direct deposit was a hotly debated issue. "Some people like to be paid in cash," says Pautsch, acknowledging that how people get paid is a very sensitive topic.
Pautsch says his home state of Illinois has the most stringent laws regarding payroll and paycards. "It's an area where if you don't pay people properly and violate wage and hour laws, this sets up liability," he notes. "And if you have a union involved, you'll have to discuss it with the union when you make a change like this."
Ryan Rogers, an associate at the Washington office of Morrison and Foerster, says that payment cards are not new, but their potential is finally starting to be realized in the United States. "I'm a huge fan of payroll cards," he says, adding that employers should embrace them.
Specializing in payment cards of all types -- credit, debit, gift, etc. -- Rogers says payroll cards, unlike paychecks, must comply with Regulation E, which applies to deposit accounts and access devices, including bank debit cards. "In 2007, there was a special provision in regulation E developed for payroll cards, because of the way in which the cards are used and the more limited relationship banks have with users of payroll cards," he says, noting that payroll cards bypass the need for a bank account, making them an attractive method of payment in those industries which utilize a young or transient workforce. "If you educate your employees on the benefits they get with payroll cards, then it's a no-brainer."
When processed and handled properly, payroll cards can reduce payroll costs, and employees find them convenient; giving them access to forms of payment without having a bank account. "It can be a win-win for both sides, but employers will want to look carefully before jumping in," says Cheryl Orr, a partner and co-chair of the national labor and employment practice group at Drinker Biddle & Reath's San Francisco office.
Orr says that while every state has its own wage and hour laws, "free and clear access" to payment is the law in many states. "I advise employers to thoroughly think through the access to funds and make sure there aren't any fees," she says, advising HR leaders to shop around for a knowledgeable payroll provider. "Be clear on what your payroll provider is doing and whose responsibility it is if something goes wrong. You might want to think of adding an indemnification clause in the contract if someone should get sued for fees. Do your homework on your payroll provider and have your legal team make sure their practices are in accordance with respective state laws."
Goebel says that one way employers can be proactive in the successful implementation of a new payroll-card program is by using the cards themselves. "A lot of employers -- both HR payroll and management -- sign up for the card before rolling out the program, so they can talk to their employees about how to use the card from personal experience."
Visa.com has a link that shows providers who offer payroll cards, and there is an array of options, but Goebel suggests that employers check that list to see if there's a company they already work with on it. "Expand existing relationships," she says. "You can ease into it or choose a firm date. It's up to the employer to decide how best to implement a program, but hire a capable program manager and have legal at the table to ensure the program is rolled out in the most effective way."