What To Do if an Employee Won't Accept Your Payroll Card

Adam Rust

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.

WiseWage Payroll Card Substitutes
Picture of card
Picture of card
Person managing payroll, asking whether to use a payroll card but wondering about mandating use of direct deposit

Can an employer give workers accounts where the business already banks?

While it would be convenient and it would potentially let funds clear faster, it cannot be mandated. Employers who want to mandate receipt of payment by direct deposit should understand that there are federal prohibitions against mandating receipt at the bank where the business also banks. Federal law is a baseline standard, but states can add additional rules that provide other protections. Federal law says “no.” If the employer banks at Big Bank of the US, then it cannot force a worker to receive pay with another Big Bank of the US account. None of this should be taken to mean that employer and employee are not able to use the same bank. The issue is the mandate.

Some states treat government employees differently. Those states tend to write rules that give additional latitude to government employers. Those rules work only because those states can make use of a credit union whose rules are set up to allow any government employee to qualify for an account regardless of banking history.

Best practice – have an alternative

Imagine you want to pay a worker who a) does not have a bank account b) will not accept your company’s payroll card. Wouldn’t it be worth it to have one more option before having to resort to paying by cash or paper check? I believe it would be, and that’s why I want to mention that a “turn-down” alternative like WiseWage is an excellent thing to have in your human resources payroll department pocket.

WiseWage is not just an alternative to a payroll card. It’s also an alternative with more choices of its own! It always has more than one account. A worker couldn’t ignore the fact that he or she was offered a payroll card, insist that the employer mandated the use of a WiseWage card, and then cause a complaint. Sending an employee to WiseWage is inherently not a mandate – it’s an invitation to the worker to select from fee-free accounts.

Remember that some states require employers to give workers the ability to withdraw 100 percent of pay each pay period for free. WiseWage accounts come with fee-free ATM networks. There is no cap on the number of withdrawals that can be made per pay period.

Net lesson: there is a value in having a payroll card and also having WiseWage as an alternative turn-down product to your payroll card option.  

Note: I am not a lawyer, and these comments should not be taken as legal advice. You should consult an attorney. You should not consider WiseWage to be a source of legal advice. Laws can change and all are open to interpretation.

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Adam Rust has worked to defend consumers against harmful financial practices since 2005. He has written extensively about overdraft fees, payday lending, credit insurance, student loans, prepaid debit cards, high-cost installment loans, and subprime mortgage lending. The New York Times interviewed him when it reported on the CFPB's rulemaking on prepaid debit cards; subsequently, his research paper framed the debate on consumer protections.

He serves on the Board of the US Faster Payments Council. He is Director of Research at Reinvestment Partners in Durham, North Carolina. He is the author of BankTalk. He is the author of "This is My Home: Challenges and Opportunities of Manufactured Housing" and has testified to Congress on how to redress some of the problems with manufactured housing. See more on his LinkedIn profile.