There are states where employees may turn down a company’s payroll card.
Offering a payroll card is a great way for a company to move toward 100 percent direct deposit, especially for larger firms that can justify the compliance and contract work required to launch a program. Getting everyone on direct deposit is harder if new hires come to your company without bank accounts. While more than half of all businesses now pay their workers by direct deposit, less than one-third pay all of their workers by direct deposit.
The incidence of unbanked workers varies according to the type of business. It is a concern that tends to occur most often in a handful of sectors, so while it might not be a problem at firm of scientists, it could be very common at a nursing home. Paying unbanked workers is a problem. Using paper checks adds costs to payroll – probably two or three dollars per paycheck once direct and indirect expenses are accounted for entirely. Going to direct deposit cuts down on overhead – but doing so implies a process of asking workers to consent pay by direct deposit and then collecting their bank account information.
Payroll card programs are designed to solve this problem. With a payroll card, the business gets a book of ready-to-use "instant issue" cards. They get a keysheet with corresponding account numbers for each card. The instant issue card will allow a worker to spend money immediately. While the card doesn't bear the name of the worker, a new one with the worker's name will arrive in their mailbox shortly.
Businesses love having a book of ready-to-use plastic cards on hand to distribute to otherwise unbanked workers.
Unfortunately, nothing works all the time. Payroll cards have certain inherent limitations, beginning with restrictions on the number of free ATM withdrawals. True, all payroll cards have to give workers some means to access their funds in cash. The difference comes in how it is done and how often the cash can be drawn down. Typically, a payroll card program lets workers draw money at the bank teller. It is the exception to the rule that workers can use an ATM. Sometimes there is a limit - usually once per pay period. Thus, a worker faces two constraints: it is only possible to get cash inside a bank, and it can only occur once. Additionally, while ATMs work 24-7-365, bank branches are only open during "banker's hours." Often, workers end up paying lots of small fees to use the account. As a result, it is understandable why individual workers might object to using a company’s payroll card offering.
Employers often ask about the rules that apply to the process. I think it bears breaking the question into separate parts. First, is it possible to mandate the use of direct deposit, and then if so, can the employer mandate the choice of an account at a specific bank?
Both issues come into play at the same time, but the law treats them separately.
An employer cannot mandate the use of a particular bank account. Federal law gives employees the right to choose. Certain exceptions do exist.
On the other hand, in some states, employers do have the right to mandate workers to use direct deposit. As of January 2018, employers in nine states had the right to insist on receipt of wages by direct deposit: Indiana, Kansas, Minnesota, Missouri, South Carolina, Texas, Virginia, Washington, and West Virginia.
In twenty-one states, an employer cannot mandate that a worker receive pay by direct deposit; instead, they first have to secure permission from their workers. State rules vary on the exact definition of consent – some use an opt-out approach while others have opt-in regimes.
Other states are silent on the question of insisting on the use of direct deposit.
Employers should develop an alternative offering if a worker balks at the company’s payroll card offering. Be proactive; if the employer says no, then you should have an option at your immediate disposal. Otherwise, the company takes the risk that the worker will need weeks or months to find an alternative account.
Note: If you would like to learn more about using a payroll card, we can help you explore the question. WiseWage has partnered with FinTwist to offer payroll cards to businesses.