Payroll cards have received some negative press lately, and the Consumer Financial Protection Bureau (CFPB), the consumer watchdog agency, recently issued a bulletin reminding employers of proper use. However, this doesn’t mean that employers should eliminate their payroll debit card program. These programs have many advantages and provide value to both employers and employees.
Proponents tout payroll cards to employers as a way to reduce payroll costs and increase efficiency. Employee pay is direct deposited onto a card, making it easier for employers to reconcile their payroll bank account. By eliminating the printing and delivery of paper checks, employers can save time and money and reduce the worry of lost or stolen payroll checks. Payroll cards streamline the process by making direct deposit available for all; this is particularly important for employees who do not have a bank account. Payroll cards also provide the added safety and security of PIN protection. Employees can make purchases and pay bills using a pay card and no longer need to go to and pay fees at a check-cashing store. However, this is also where some payroll card programs run into trouble, because they may have cardholder fees of their own.
Employers should be aware of fees when selecting a pay card program and should ensure that employees have multiple methods for obtaining access to their full wages every pay period. Federal law prohibits employers from mandating that employees receive wages only on a payroll card of the employer's choosing. The employee must be able to make a choice between the employer provided payroll card and wage payment via another means. In addition, states may also have requirements regarding the available methods of wage payment. As reported recently in the media, some employers didn’t give their employees a choice. Thus, the CFPB sent a bulletin reiterating regulations that apply to payroll cards
- Fee disclosures: Initial disclosure on any fees imposed by the financial institution must be provided to the cardholder, specifically those on electronic fund transfers (EFTs) and details regarding limitations on liability.
- Access to account history: The payroll card issuer must provide periodic statements or have the account balance available by telephone; online access to account history; upon request, a written history of the consumer’s account transactions; and finally, any fees imposed must be documented for the cardholder.
- Limited liability for unauthorized transfers: The employee’s liability is limited as long as the unauthorized use is reported within a certain time period.
- Error resolution rights: The financial institution must respond to a cardholder if they report an error within 120 days after the error occurred.
The American Payroll Association and the National Consumer Law Center issued a joint statement about the advantages of payroll cards and best practices for employers to follow. A few of the guidelines included giving employees access to their full wages in cash at least once a pay period without fees and also offering a payroll card that is widely accepted (i.e., Visa, MasterCard or Discover). Employers should also provide clear information and training on use of the payroll card and any possible fees.
Payroll cards are part of the new era of doing everything electronically. When done right, they provide a convenient and cost effective way of delivering payroll, one that is mutually beneficial to both employers and their workforce. Investigate how much money your company can potentially save by implementing a payroll card program and learn how it can streamline your payroll process.