Payroll Cards: Positive or Negative Experience for Employees?

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Though employees don’t necessarily like them, payroll cards can cut employers’ payroll processing costs.

In June, Natalie Gunshannon, a former fast-food worker in Pennsylvania, captured headlines when she filed a lawsuit against the franchise owner of the McDonald’s restaurant at which she used to work. Her charge? That the franchisor violated the Pennsylvania Wage Payment and Collection Act, which requires that “wages be paid in lawful money of the United States or check,” by paying some employees with a JP Morgan Chase Payroll Card. The franchise owner mandated the use of the card as the “sole wage payment device” for hourly employees, the suit stated, although managers and assistant managers could receive their pay through direct deposit.

By receiving their wages through payroll cards, hourly employees were forced to pay a variety of fees just to access the money they earned. According to the suit, an ATM withdrawal costs $1.50; a monthly paper statement, $1.00; and replacing a lost or stolen card a whopping $16.00. For an employee earning minimum wage, the fees could easily stack up. In fact, Gunshannon alleged that the fees could result in some employees earning less than minimum wage.

Gunshannon said she asked to be paid either via direct deposit or check, but was refused.

While Gunshannon may be the first to file a lawsuit about the use of payroll cards, her employer’s use of the cards isn’t unusual. Estimates by research firm Aite Group put the market at $34.1 billion in 2012, growing to $68.9 billion in 2017, for a compound annual growth rate of nearly 20 percent. The reason? Payroll cards can cut employers’ payroll processing costs.

However, the fees associated with payroll cards have caught the attention of lawmakers. In July, U.S. Senators Bob Casey (D-PA.) and Robert Menendez (D-NJ) along with 14 of their colleagues asked the Consumer Financial Protection Bureau (CFPB) and Department of Labor (DOL) to investigate the fees and practices associated with pre-paid payroll cards. They also asked the agencies to specify what payment options employers must offer under Regulation E, which implements the Electronic Funds Transfer Act, or under the Fair Labor Standards Act.

In addition, the New York Attorney General’s office is reportedly investigating companies’ use of prepaid payroll cards.

On the other hand, payroll cards “can serve as a viable alternative for consumers without bank accounts. In the past, unbanked and underbanked consumers would receive a check, go to a check casher, pay a fee to get their wages and then buy money orders to pay rent, bills and utilities,” according to Kirsten Trusko, president and executive director of the Network Branded Prepaid Card Association (or NBPCA—admittedly, not likely an unbiased source), writing in American Banker. She cites a 2010 study by the Massachusetts Division of Banks which found that an unbanked employee with annual wages of $26,000 would pay about $750 annually in check-cashing and other fees in order to cover his or her bills. 

In addition, Judith Rinearson, regulatory counsel for the NBPCA, as quoted in the AFP’s website, noted that many employees like the convenience of payroll cards. However, she did add that the industry may need to do a better job of communicating how employees can avoid the fees associated with some cards. Rinearson added that the 30 states that have adapted their wage and labor laws to allow for payroll cards all require employers to offer employees the ability to access all their wages without paying any fees.

Even so, in July, a spokesperson with the franchise owner said that the employees now would have the option of getting paid via direct deposit, paper check or payroll card, ABC News reported.

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Karen Kroll supplies the Business Finance community with reporting and commentary examining cash management and treasury-related topics.

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