Question:

My company is interested in changing the way that we pay our employees. My colleagues have informed me about the use of payroll debit cards in other states. I am wondering if California law allows employers to issue payroll debit cards to their employees in place of a paycheck or a direct deposit?

Answer:

The Division of Labor Standards Enforcement (DLSE) recently issued an opinion letter that makes it clear that the use of payroll debit cards is lawful as long as employers comply with the requirements of California Labor Code sections 212, 213, and 226.

Although most employers pay their employees by check or direct deposit, an increasing number of employees and employers are interested in the payroll debit card option for wage payment. Payroll debit cards generally operate like other debit cards. The cards can use a closed system (accepted at a single merchant or entity), or an open system (accepted by multiple merchants or entities). Many of the cards contain a Visa or MasterCard logo, and they are usable at either an ATM or any point-of-sale (POS). Employers using payroll debit cards deposit employee payroll by direct deposit into individual employee accounts at a FDIC-member bank, and give each employee a payroll debit card. On payday, employees have immediate access to their full wages by using the card at an ATM or a POS. Employees must receive at least one free transaction per pay period.

The DLSE’s opinion letter states that the programs employers implement regarding the use of payroll debit cards must have certain features in order to comply with California law. The opinion letter explains that payment of wages via payroll debit cards must comply with California Labor Code Section 212, which requires that employers pay wages using forms of payment that are “negotiable and payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument and at the time of its issuance and for a reasonable time thereafter, which must be at least 30 days, the maker or drawer has sufficient funds in, or credit, arrangement, or understanding with the drawee for its payment.” Thus, the Labor Commissioner explained that under Section 212, payroll debit card programs must have the following features:

  • The employee must voluntarily enter into the program as an alternative to receiving a traditional paycheck or a direct deposit into the employee’s personal account.
  • The employee must be informed regarding all aspects of the program.
  • The employee must be able to use the cards at numerous locations within the state.
  • The employee must have full access to his or her wages on payday. This requirement is met if the employee receives at least one free transaction per pay period.
  • The employer must issue a separate itemized wage statement for each pay period as required by California Labor Code Section 226.

The DLSE found that the requirement that the “name and address . . . appear on the instrument” is met when the place of business is a bank, because the ATM or POS serves as an alternative for the bank issuing the cards. Also, the payroll debit cards fulfill the requirement that the money be held in employees’ accounts for at least 30 days.

Furthermore, the opinion letter states that the payroll debit card system must comply with California Labor Code Section 213, which authorizes an employer to deposit wages due in an account at any bank, savings and loan association, or credit union of the employee’s choice with a place of business in the state. The requirements of Section 213 are met as long the as the employee voluntarily agrees to participate in the program. Moreover, the bank selected must have “significant presence” to be considered an established place of business within the state.

As explained above, employers may issue payroll debit cards in place of more traditional forms of wage payment so long as California Labor Code Sections 212, 213, and 226 are adhered to. In order to be a lawful alternative to more traditional methods of payment, use of the payroll debit card must be voluntary and offered as an alternative method of payment, the funds must be immediately available on payday, and employees must be able to withdraw all funds without a transaction fee.
– – – – – – – – – – – – – – – – – – – – – – – – – –
Back to Menu- Work Place Law 2009 Articles