Payroll cards – essentially debit cards on which an employee receives their pay – have gotten a lot of attention lately. The New York Times covered this recently with a story highlighting the way the exorbitant fees on some of those payroll cards harmed workers who were earning little enough anyway. The Times story focused on employees in Texas and Pennsylvania; nevertheless, the article prompted an investigation by the New York State attorney general. Many employers view these cards as a way of reducing their payroll expenses, or even as a moneymaker – the Times article mentions that the New York City Housing Authority (NYCHA) gets a $1 kickback for each employee they sign up for one of the cards. Aside from often being a bad deal because of the high fees charged for using the cards (this is how the payroll card companies make their money after all), making employees receive their pay in this way could run afoul of the New York Labor Law.
Section 192 of the Labor Law says that no employer can directly pay an employee’s wages into a bank “or other financial institution” without the employee consenting, in advance, in writing. Thus, an employee must consent in advance to the use of those cards, and that consent could not be coerced without violating the law. But, even if the employee does consent, payroll cards could still be illegal. Another section of the Labor Law, sec. 193, says that no deductions can be made from an employee’s wages, except things for the direct benefit of the employee, such as for insurance premiums, pension contributions, and the like. An employer could certainly not deduct payroll administration costs from an employee’s paycheck. Logically, if an employer foists its payroll charges on its employees indirectly, through a fee-laden payroll card, it would still break the law. The New York Department of Labor (DOL) is of the opinion that payment with a payroll card is of the opinion that payroll cards are only permitted if the employee is able to get their wages from the card, in full, at no charge obviously something not possible at an ATM, unless the employee’s net pay happens to be in increments of $20.
In addition, Labor Law section 198-b forbids an employer from demanding “kick-backs” of the agreed-upon wages, which is something not addresed by the DOL’s letter. NYCHA’s arrangement where it gets paid a fee by the payroll company for enrolling each employee may violate 198-b, if the fee is paid for by fees incurred by using the payroll card.
Worker’s wages have stagnated enough without getting them chiseled by payroll card fees that partly end up, though kickbacks and administrative savings, back in the pocket of the employer.