Concerns are surfacing that employees who are paid using payroll debit cards are being unfairly cheated out of their wages, and the required minimum wage for hours worked.
Prepaid debit cards have become an increasingly popular form of payment for a number of businesses, including retailers and restaurants.
It has been alleged that the ATM, debit and other fees connected to these cards may be reducing employees’ net pay beneath the minimum wage. As more employers transition from direct deposits and paper checks to payroll debit cards, it is expected that a new wave of litigation could be triggered across the country, especially as states begin to investigate the fees associated with this form of wage payment.
Payroll Card Laws and Legislation: What’s Protecting Card Holders?
The problem with payroll debit cards becomes particularly concerning when employers only offer payroll cards or pressure employees into using debit cards for wage payment. In 25 states, companies are permitted to forgo the use of paper checks and instead institute direct deposit and payroll debit card wage payments. The remaining states have less-defined regulations, which may put them at risk for legal trouble should they drop the paper check option. Even when employees are given a choice in regard to their method of payment, reports are surfacing that employers are automatically entering their workers in payroll debit card programs, and present a mound of paperwork in the event an employee wants to opt out.
In most states, employers are required to pay workers their full wages without discount, regardless of the method of payment. They are prohibited from making deductions (with the exception of taxes, Social Security, etc.), and can be penalized for failure to comply with these regulations. With complaints surfacing that payroll debit cards may be unduly reducing workers’ take-home pay beneath minimum wage requirements, both lawyers and state attorneys general across the country are questioning whether use of these prepaid cards comply with state and federal labor laws.
In 2011, consumer groups began to voice interest in payroll card legislation, expressing concern that some companies may attempt to take advantage of their employees who may unknowingly incur bank charges, ATM fees and other deductions in their pay. These groups have advocated for further consumer protections, including free banking services and multiple methods of free cash access.
Prepaid Debit Card Wages: Are Employers Looking to Cut Costs?
Payroll debit cards are becoming increasingly popular, particularly with retail stores and restaurants, because they are more efficient than paper checks—and cheaper. According to an article in the New York Times, a business with 500 workers could save more than $20,000 every year by switching their employees from paper checks to debit cards. In doing so, however, employees are reportedly incurring a number of fees in using these cards, including, but not limited to the following:
Out-of-network ATM fees
Overdraft of balance protection fees
Fees for transferring money from a payroll card to a checking account
Balance inquiry fees
Account closing fees
Lost card fees
If these fees are causing employees’ pay to fall beneath the minimum wage, employers may be liable for these wages, in addition to attorneys’ fees and other damages. Most payroll laws operate under the theory of strict liability, meaning that employers are liable even if they unknowingly violated the law.