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Revisiting Pay Cards: What Are Your Legal Obligations?

June 14, 2018 | posted by Abacus Payroll

If you use pay cards to compensate your employees, you’re probably aware of your state’s regulations on the matter. As pay card implementation rises, however, so do the number of legal variables to consider. Here’s a breakdown on general pay card use and legislation.

Pay Card Dos

When implementing a pay card system, obtain written consent from your employees. Not only is this legally mandated in most states but it’s also a good way to cover yourself if a problem arises later. Additionally, it gives you a running tally of the employees you’ll have on your pay card system, making it easy to keep track of how many employees aren’t using pay cards—and, likewise, how many paper checks (or stubs) you need to order each month.

Before you even hand out the consent forms, however, you should check with your state’s legislature to ensure you’ve checked all the necessary boxes. Even with written consent, failing to address one of your state’s key points will most likely result in fines or other punitive measures. Avoid negative repercussions by educating yourself thoroughly on pay card details.

After you’ve obtained your written consent, the first thing you should do is hold a seminar on proper pay card use and hidden features. The average pay card comes with a bevy of hidden fees, usage limits, and more; you’ll have access to this information, and it is both your moral duty and your legal one to pass it along to your employees in a non-discreet setting (e.g., a formal training).

This will also provide an opportunity to tell your employees about pay cards’ advantages over checks, which include the following:

  • Lower susceptibility to theft and fraud
  • No need to visit the bank
  • More stringent security measures
  • No need to purchase checks
  • Ability to shop online

Finally, you must provide a non-pay card alternative to employees who request it as well as a form of pay stub that displays their deductions for that pay period. The pay stub itself can be digital if necessary, but the employees must be able to access it.


Pay Card Don’ts

You can’t provide pay cards as a means of continuing employment. This isn’t to say that you can’t pitch pay cards to employees who initially opt out of using them, but forcing employees to default to pay cards is illegal. This is especially important for hiring practices; new hires must start by using a traditional paper check (or direct deposit) system. They can opt for pay cards later.

Similarly, you can’t provide incentives to switch over to pay cards. Even informal rewards like gift cards or an office party are technically off-limits.

As mentioned earlier, don’t gloss over the uglier aspects of pay cards. List in explicit detail actions that incur fees as well as the respective fee amounts. If there are specific times during the pay period at which your employees can withdraw their balance for free, make them aware of it; likewise, if there are ATMs that never charge fees, point your employees toward them.

Ultimately, you should refrain from rushing to implement a pay card procedure in a traditional workplace. Begin by educating your employees on the pros and cons of pay card use and see how many of them show interest in developing the program further. If the total number of interested parties is high enough to warrant moving on, then do so.


See further reading on paying small business employees with pay cards:


At Abacus Payroll, we’re dedicated to keeping you informed on all of the latest industry trends. For more information on pay cards and how to use them, call us at (856) 667-6225 today!

About the Author: Abacus Payroll

Abacus Payroll, Inc. is a leading provider of payroll solutions for businesses of all sizes. Whether yours is a family-owned small business or a national corporation, we provide payroll, tax and other financial services on time and at an affordable price. Unlike other payroll providers, Abacus Payroll will assign your very own payroll specialist who will understand your payroll needs inside and out. So no more speaking to a different person each time, no more sitting on hold for hours and most importantly no more missed deadlines! Contact us today to see how we can help your business. You can count on us.