Workers’ advocates say state’s new rules will be America’s strongest to date
Beginning in March, New York State will implement what its governor calls the “most comprehensive payroll card protections” in the United States.
Governor Andrew Cuomo says the new Department of Labor rules, which take effect Mar. 7, will not only regulate how employers implement payroll cards for paying employees, they will also prohibit employers and card providers from charging workers a number of different types of fees for the cards.
“By eliminating costly hidden fees and removing barriers to accessing money workers have rightly earned, these nation-leading regulations build upon this administration’s efforts to prevent worker exploitation and help ensure all employees are treated with fairness, decency and respect,” Cuomo said in a news release.
Payroll cards, like direct deposit, are a way to pay employees. Employers load an employee’s pay onto a card instead of depositing it in the employee’s bank account or giving the employee a cheque. The employee can use the card like a debit card to make purchases or withdraw amounts using an ATM.
The use of payroll cards in the U.S. has increased significantly in recent years, according to a 2014 report by New York state’s attorney general’s office. It cites data from a Forbes magazine report estimating that in 2013, 5.8 million American workers were paid their wages on payroll cards and that that number is expected to rise to 10.8 million by next year. Employers in Canada do not commonly use the cards to pay wages.
In New York state, the government estimates that 13,000 businesses pay approximately 200,000 workers through payroll cards.
The cards offer a number of benefits, including saving employers money by reducing the use of paper cheques. They also provide a way to pay workers during weather-related disasters or when employees do not have a bank account for direct deposit payments.
However, some labour, human rights and community groups have long called for governments to regulate the use of the cards, complaining that fees often associated with them hurt employees, especially low-wage workers. In addition, they say some employers require employees to be paid with payroll cards, not allowing them to opt for direct deposit or payment of cheque instead.
A 2014 survey by New Economy Project, New York Public Interest Research Group and Retail Action Project found that low-wage workers paid with payroll cards reported being charged multiple fees, including account inactivity, maintenance, customer service and point-of-sale fees, as well as fees to check their balances or to request paper statements.
In addition, the New York attorney general’s report found that about 75 per cent of workers paid with payroll cards incurred some kind of fees for them. In some cases, fees averaged about $20 a month. It also noted that employees were often not given enough information on how to obtain their wages without incurring fees.
To try to balance business demand for the cards with worker concerns about them (there have been some lawsuits about the use of the cards in recent years), some states have begun to regulate their use. There are also federal consumer protection rules that apply to payroll cards.
The extent of the regulations in the U.S. varies, depending on the state. Some limit the fees that employers or payroll card providers can charge employees while others only require them to notify employees of the amount of the fees they could incur. Workers’ advocates say New York’s new regulations will go beyond the rules in other states.
“We commend the administration for adopting the nation’s strongest rules reining in the payroll card industry and protecting workers from coercion and unfair fees,” said Deyanira Del Rio, co-director of the New Economy Project.
The new rules in New York will prohibit employers or payroll card agents from charging employees fees for things such as loading a payroll card, checking their balance, maintaining an account, having an inactive account, contacting customer service by phone or online, or having an overdraft, shortage or low-balance status.
The rules do not apply to individuals employed in executive, administrative or professional roles who earn more than $900 a week or to employees working on a farm that is not connected with a factory.
The new rules will also require employers to ensure that employees have access to at least one automated teller machine (ATM) within a reasonable distance of where they work or live that does not charge fees for withdrawals. The regulations do not define “reasonable.”
Employers will have to give employees a list of the ATM locations. The state’s Labor Department says employers can meet this requirement by providing employees with a link to a website that has a list of the ATMs or a way for employees to access a list.
Employers will also have to provide employees with at least one way to withdraw up to the total amount of their pay-period wages or the balance remaining on the card without incurring fees.
In addition, the new rules will prohibit employers from receiving kickbacks or other financial compensation for using payroll cards. The department has said that it generally would not consider kickbacks to include indirect or incidental benefits that card companies provide to employers for using them, such as volume discounts.
“However, direct monetary payments or incentives from an issuer to an employer as a result of fees or revenues collected are prohibited,” it says.
Like some other states, New York will prohibit employers from making payment by payroll card a condition of employment. It will also require that employers give employees other options for being paid, including cash, cheque and direct deposit.
Employers will also have to give employees advance notice of their plan to use payroll cards and obtain employees’ written or electronic consent to be paid by that method.
The notice will have to include all of the options an employee has for receiving pay, a statement that the employer cannot require the employee to be paid by payroll card, a statement that the employee cannot be charged any fees for services required to access their full wages, and the list of ATMs.
With the exception of providing the ATM list, the new notice and consent rules will also apply to employers who want to pay their employees by direct deposit. Employers will have to keep a copy of the employee’s consent for direct deposit on file for six years after the last payment of wages that way.
Employers will have to provide the notice to employees in English, as well as in their primary language if the Labor Department provides a template for notice and consent in that language.
Employers will also have to notify employees at least 30 days before making any changes to terms and conditions for a payroll card, including fee changes.
While workers’ advocates have applauded the new rules, business and payroll representatives have expressed concerns that they could discourage employers from using payroll cards.
“Because of these broad fee restrictions, the cost of these services provided by the bank would be borne by the employer, and will certainly influence decisions on whether pay cards are an economically feasible option for an employer,” said Catherine Tully, head of government affairs for The Business Council of New York State in commenting on the rules when they were in draft form.
One new requirement of particular concern is that employers will have to obtain employees’ consent at least seven business days before beginning to use payroll cards to pay them. “This may cause confusion as companies must initially provide wages under a different method until the waiting period is complete,” says The Business Council.
The American Payroll Association (APA) has said the new consent requirement could also be costly for employees. If employers have to pay employees by cheque until the seven-day period is up, the association says employees could incur cheque-cashing fees.
Despite the concerns raised, the Labor Department maintains that the waiting period is necessary. “This period ensures that employees have the opportunity to evaluate and assess the method of payment in a meaningful way without being limited in their ability to withdraw their consent immediately,” it says.
While the Labor Department did not make many changes to the rules from the time it published a draft of them in June to the final version posted in September, it did soften its position of the need for employers to obtain updated employee consent for direct deposit or payroll cards.
