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Pay Card Laws by State

Pay Card Laws by State and Regulations

You might be familiar with the concept of paying your employees with payroll cards. Pay cards are just one method you can use to pay employees, along with direct deposit, paychecks, and even paying employees in cash. With pay cards growing in popularity, some states have enacted laws prohibiting or allowing employers to use pay cards. Being aware of the pay card laws by state can benefit you if you decide to pay your employees via pay cards.

What is a pay card?

A pay card, or payroll card, lets you put your employees’ wages on their prepaid cards each pay period. It is similar to a debit card, but only your employees’ paychecks can be put on the reloadable cards.

Your employees do not need to have bank accounts to receive their wages on a pay card. If your employee is unbanked, meaning they do not have a bank account, pay cards might be a solution to direct deposit.

Your employees can use their pay cards to make purchases or payments, or they can withdraw cash at ATMs.

There are two categories of pay cards: branded and nonbranded. Branded pay cards include Visa, MasterCard, American Express and Discover Card. Nonbranded pay cards belong to ATM or POS networks, like STAR or Pulse.

More than 25% of households in the U.S. are unbanked.

Pay cards are a convenience to both employers or employees. But, there are also fees that can deter employees from choosing pay cards.

Pay card laws by state

Some states have passed laws regulating the use of pay cards. Since pay cards are still fairly new, legislation is expected to change as more employers and employees request payment by pay card. (Source: American Payroll Association, 2016)

State Law
Alaska Employers can offer pay cards to employees as long as employees can access their entire payment.
Arizona An employer can pay employees with a pay card if the employee does not provide consent or choose a financial institution for direct deposit. However, employees must get one free withdrawal per pay period and be aware of all fees.
California Employees can receive their wages via pay cards as long as they comply with state laws governing payment by direct deposit or check.
Colorado Employees must receive free access to their wages at least once per pay period, or they can choose a different payment method.
Delaware Employees can receive their wages on a pay card as long as they have full access to their wages at a bank close to work without incurring a fee.
Florida Pay cards are acceptable methods for employees to receive wages, but the card must be supported by sufficient funds for a minimum of 30 days.
Georgia Employees must receive a written disclosure of fees and can choose to receive a check or direct deposit at any time.
Hawaii An employer must give employees the option of selecting pay card, check, or direct deposit. Employers are not allowed to require pay cards. Employees must give their consent and receive a written disclosure. If the employee wants to select a different payment method, they can do so at any time. Money on the pay card cannot expire.
There are also some conditions for the pay card provider the employer chooses. The pay card vendor must provide one free replacement each year and allow employees to make at least three free withdrawals per pay period. Employees must be able to access their account. Also, employees cannot be fined for overdrawing from their account.
Illinois Employers can pay employees with pay cards only if they provide the employee with a written notice, offer another payment method, and obtain the employee’s written consent.
Iowa Employees must be offered other payment methods along with pay cards, and they cannot incur a fee.
Kansas Employers can require employees to receive their wages via pay cards if the employee receives at least one free withdrawal each pay period. Employees are responsible for replacement fees.
Maine The employee must be able to make one free withdrawal or choose another payment method.
Maryland Employees must authorize receiving wages via pay card and be aware of any fees.
Michigan Employees must receive at least one free withdrawal or transfer per pay period. And, they can choose a new payment method at any time. Employers are responsible for giving employees written verification of the employee’s rights and let them know in advance if there will be any changes.
Minnesota Employees must receive one free withdrawal, receive one free transaction history per month upon request, and must give their consent to receive a pay card. Employees can also change the payment method at any time.
Missouri If an employee does not have a checking or savings account or does not give information for setting up direct deposit, employers must pay them with a payroll card.
Montana Employees must have the option to receive payment via check and consent to getting paid with a pay card. And, they must be able to withdraw without a fee, receive statements, and receive a written disclosure before signing up for a pay card.
Nebraska Employers must go by federal law. Also, employees should receive one free withdrawal per pay period.
Nevada Employees must receive at least one free transaction, written disclosure, and they must give their consent.
New Hampshire An employee must get one free withdrawal per pay period. Employees must also receive written disclosure before starting as well as the option of receiving a check. If the pay card has an expiration date, the employer is responsible for getting employees new ones and covering the cost.
New Jersey Employee consent is required, and they must be able to choose a new payment method at any time. Employers are required to provide a written disclosure. And, employees can make one free withdrawal at least once per pay period.
New Mexico Employee consent is required.
New York There can be no fees for employees to withdraw from their pay card. Employers cannot require pay cards for nonexempt employees. Employees must receive a written disclosure and have a bank to make withdrawals near their work.
North Carolina Employees must be able to withdraw all amounts on payday.
North Dakota Employees must be given a choice between pay cards and direct deposit. Also, the pay card must be issued by a federally insured bank or credit union, and the money must be insured by the FDIC.
Oklahoma An employee can choose to receive their wages on a pay card and cannot be charged a fee.
Oregon An employee must be able to withdraw the entire amount of their first pay without fees, select a different payment method, and give consent.
Pennsylvania Employees must consent to the use of pay cards in writing, receive one free withdrawal per pay period, and they can stop receiving their wages on pay cards at any time. There can be no fees associated with the pay card for employees, and they must be able to check the balance electronically or via phone.
Rhode Island Employees must be allowed at least one free withdrawal per pay period. They must also authorize the payment of wages via pay card and be able to check their account balance at any time.
Tennessee The employee must be able to withdraw or transfer their wages from the pay card, receive one free withdrawal or transfer per pay period, have the option of direct deposit, and receive a written disclosure from the employer. If an employee does not designate a financial institution for direct deposit, employers can choose to pay via pay card.
Utah Employees can withdraw their full paycheck without fees, and the full amount must be on their pay card on payday.
Vermont An employee must give written consent after receiving a disclosure on pay cards. Employees must receive branded pay cards, at least three free withdrawals, and one free replacement card per year. No employer fees associated with pay cards can be passed on to employees. And, employees can choose to stop receiving their wages on pay cards at any time.
Virginia Employers can use pay cards without the employee’s consent for those hired after January 1, 2010 if the employee does not designate a financial institution for direct deposit. Employees must be allowed one or more free withdrawals per pay period.
West Virginia Employees and employers must agree in writing, and the payroll card account must be in a federally insured depository institution.
Wyoming Employees must be allowed one or more free withdrawals per pay period.

Check with your state department of labor for more information on pay card laws by state.

Payroll card regulations

There are general payroll card regulations you should be aware of before offering them as a payment option to your employees. Though some states allow you to require your employees to have direct deposit, you cannot force your employees to have pay cards.

According to the federal payroll debit card laws, you are required to offer at least one other payment option in addition to pay cards. You must also let employees know about the withdrawal and replacement fees associated with payroll cards.

If an employee receives their wages on a pay card, you have to provide them with a pay stub if the payroll card vendor does not supply pay stub information.

In the case where you overpay an employee on their pay card, you can adjust the payment the same way you would direct deposit.

If you are required to withhold garnishments from an employee’s wages and forget to do so, the government can go into their pay card account and withdraw the necessary funds.

Since pay cards involve a payroll card program vendor, you need to verify that the vendor complies with the following rules:

  • Federal Electronic Fund Transfer Act and Regulation E protections, including disclosures, unauthorized transactions, etc.
  • Card operating rules (Mastercard, Visa, Discover)
  • Provides the employees with access to their accounts
  • Security
  • Anti-laundering

Follow pay card regulations and when deciding to offer pay cards to employees. And, make sure you comply with state laws.

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This is not intended as legal advice; for more information, please click here.

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