United States: Taking The "Direct" Out Of Direct Deposit: New York Attempts Crackdown On Employers' Ability To Pay Wages By Direct Deposit And Debit Card

UPDATE:  In a February 16, 2017, decision, the New York State Industrial Board of Appeals (IBA) revoked the final regulations issued by the New York State Department of Labor (“DOL”) regarding payment of wages by debit card and direct deposit.  The IBA concluded that the Commissioner exceeded his “rulemaking authority and encroached upon the jurisdiction of the banking and financial services regulators.” The regulations (12 NYCRR §192) were to become effective on March 7, 2017.  Note that this revocation has not been reflected on the DOL’s website.  Thus, while employers need not act to come into compliance with these revoked regulations at this time, an appeal by the DOL or introduction of revised regulations in the near term is possible. 

On September 7, 2016, the New York Department of Labor (“DOL”) issued final rules on the Methods of Wage Payment (“Final Rules”), slated to become effective on March 7, 2017.

The Final Rules provide clarification and specification as to the permissible methods of payment, including payroll debit cards, and apply to all employers with New York employees, except those employed in a bona fide executive, administrative, or professional capacity whose earnings are in excess of $900 a week, or an employee working on a farm not connected with a factory.

The rules confirm that permissible methods of payment include cash, check, direct deposit or payroll debit card, but place strict requirements on employers who choose to use the latter two options.

Per the rules, an employer who pays wages to its New York employees by means other than cash or check is required to provide those employees with a written notice identifying the following:

  1. A plain language description of all of the employee’s options for receiving wages;
  2. A statement that the employer may not require the employee to accept wages by payroll debit card or by direct deposit;
  3. A statement that the employee may not be charged any fees for services that are necessary for the employee to access his or her wages in full; and
  4. If offering employees the option of receiving payment via payroll debit card, a list (or link to a website that provides a list) of locations where employees can access and withdraw wages at no charge to the employees within reasonable proximity to their place of residence or place of work.

The written notice and written consent may be provided and obtained electronically so long as an employee is provided with the ability to view and print both the notice and the consent while the employee is at work and without cost to the employee, and the employee is notified of his or her right to print such materials by the employer through such electronic process. The notice and consent must be provided in English and in the primary language of the employee. The employee however, is free to withdraw consent at any time. If an employee does withdraw his or her consent, then the employer has a maximum of two full pay periods to stop payment by direct deposit or debit card.

The DOL has stated that consents and authorizations for the payment of wages via direct deposit and/or payroll debit card executed before the effective date of the rule will remain valid so long as such notices are provided to employees before March 7, 2017, and employees are expressly notified of their right to withdraw consent to direct deposit or payroll debit card through such notices.

For Employers Who Pay Wages by Check:

When paying wages by check, New York employers are required to ensure that:

  • The check is a negotiable instrument; and
  • The employer is not imposing any fees in connection with the use of checks for the payment of wages, including a fee for replacement of a lost or stolen check.

For Employers Who Pay Wages by Direct Deposit:

When paying wages by direct deposit, New York employers are required to ensure that:

  • Notice in the manner above has been provided;
  • Consent from the employee has been obtained;
  • A copy of the employee’s consent is maintained during the period of the employee’s employment and for six years following the last payment of wages by direct deposit (a copy of same must be provided to the employee); and
  • Such direct deposit is made to a financial institution selected by the employee.

For Employers Who Pay Wages Through Payroll Debit Cards:

When paying wages by payroll debit card, New York employers are required to ensure that:

  • Notice in the manner above has been provided;
  • Consent from the employee has been obtained and the employer has waited least seven business days prior to taking action to issue the payment of wages by payroll debit card;
  • Local access to one or more ATMs that offer withdrawals at no cost to the employee is provided; and
  • At least one method to withdraw up to the total amount of wages for each pay period or balance remaining on the payroll debit card without the employee incurring a fee is provided.

Employers are not obligated to provide additional services in connection with employees’ use of payroll debit cards. However, if an employer or their payroll debit card provider does provide additional services to employees related to their use of the cards, the employer must make sure that employees are not charged, directly or indirectly, for any fees related to such use, including overdraft fees, fees related to balance and transaction inquiries, maintenance fees, fees for replacing the card at reasonable intervals and/or fees related to closing an account.

An employer is not allowed to deliver payment of wages by a payroll debit card account that is linked to any form of credit, including a loan against future pay or a cash advance on future pay. Further, an employer cannot pass on any of its own costs associated with a payroll debit card account to an employee nor can an employer receive any kickback or financial remuneration from the issuer, card sponsor or any third party for delivering wages by payroll debit card. The funds on a payroll debit card cannot expire; however, the account can be closed for inactivity if the issuer gives reasonable notice to the employee and the remaining funds are refunded within seven days.

Lastly, an employer must provide written notice in plain language and in the employee’s primary language at least 30 days before any change in the terms and conditions of a payroll debit card take effect. Such notice must be in 12-point font and must include any changes in the itemized list of fees. If the issuer charges the employee any new or increased fee before 30 days after the date the employer has provided the employee with written notice of the change, then the employer must reimburse the employee for the amount of that fee.

For Employers with Employees Subject to a Collective Bargaining Agreement:

An employer with employees covered by a valid collective bargaining agreement that expressly sets forth the method or methods by which wages may be paid to employees must have the approval of the union before paying by payroll card.

If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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