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Paycards 4 of 4: Common Paycard Compliance Issues for Employers

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As paycards become a more common wage payments tool, many companies are starting to consider this option as part of a comprehensive electronic payment solution to help drive efficiencies and cost savings. Paycard regulations vary by state. However, there are four common compliance issues to be aware of when offering your employees the option to receive their wages via paycards:

  • Employee Choice – Federal statute enforces that employees must be able to choose their preferred wage payment option and be given the choice to opt for another payment method. Therefore, a paycard cannot be an employee’s only option. Other options may include direct deposit to a bank, credit union or another financial institution designated by an employee, or a paper check.1 
  • Termination Pay – as indicated by pending lawsuits, there may be restrictions or limitations in some states on using paycards to distribute termination pay. 
  • Electronic Pay Stubs – Employers that provide their employees with paycards must still provide pay stubs as well. Most likely, those pay stubs are electronic, yet some states require employee consent before an employer can switch from paper to electronic pay stubs, and federal law requires employee consent for electronic W-2s.4 
  • Convenience Checks – Some paycard programs come with the opportunity to use convenience checks. These checks can be written for the full amount of the employee’s net wages. Most card programs permit workers to transfer the amount on the card to a bank account or receive cash back from purchases without fees.5 Convenience checks can also be used as part of an overall solution to help comply with states that require paper checks if they are set up to draw from an in-state bank to pay wages.5

Regulations continue to evolve and are consistently updated as states pass new legislation for paycards. If your company is considering a switch to an electronic wage payments program that includes paycards, check out our recent posts on multi-state paycard compliance, Regulation E and current paycard legislation to start getting up to speed.

 
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The information provided in this blog post is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice.  The information and services ADP provides should not be deemed a substitute for the advice of any such professional.  Such information is by nature subject to revision and may not be the most current information available.

 

http://info.americanpayroll.org/pdfs/paycards/2014-er-guide-paycard.pdf



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