On May 27, 2015, New York’s State Department of Labor (“NYSDOL”) issued proposed rules regarding payment of wages by payroll debit cards (sometimes called “pay cards”).  The proposed regulations contain good news and bad news for employers.  The good news is that they appear to let employers pay either by direct deposit or, alternatively, by pay card; in other words, a paper check option is not required.  However, the rules require that employees can only be paid by pay card following their written consent, and they contain various disclosure requirements and other steps that must be satisfied before an employee can consent.

In announcing the proposed rules, Governor Cuomo stated: “An honest day’s pay for an honest day’s work should never come with an asterisk.  These regulations crack down on one of the more underhanded forms of wage theft and will better protect hundreds of thousands of employees who work and live in New York.”  That statement should give pause to any employer that thinks NYSDOL has green-lighted pay cards as they are offered now.

Backdrop

For several years at least, many employers with a large non-exempt workforce – particularly in the retail and hospitality industries – have moved towards pay cards as a means to reduce payroll administration costs.  Most states either regulate pay card systems lightly (with fairly minimal disclosure and free withdrawal requirements) or not at all. There are two exceptions, namely New Hampshire and Montana, wherein employees must have the choice of receiving pay by an employer-issued paper check.  New York until now has been the great unknown.  New York Attorney General Schneiderman last year led many employers to believe his office (and NYSDOL) were taking a position much like New Hampshire’s.  In his final report on the subject, however, Schneiderman concluded the issue was best left to the New York legislature.  Then, when Albany failed to advance the sort of legislation he wanted, Schneiderman in February introduced his own bill in the New York Assembly.  That bill would have required that employers offer a paper check option – presumably one decoupled from pay cards.

Specifics of NYSDOL’s Proposed Rules

Again, the proposed rules do not require a paper check option. However, they prohibit pay by payroll card absent the employee’s informed written consent.  To obtain that consent, employers must wait at least seven business days before seeking the employee’s consent.  Employees must at the outset of that 7-day period receive:

• A plain language description of all of employee options for receiving wages;
• A statement that the employer may not require the employee to accept wages by payroll debit card;
• A statement that the employee may not be charged any fees for services that are necessary for the employee to access his or her wages in full;
• A list of locations where the employee can access and withdraw wages at no charge to the employee within reasonable proximity to his/her place of residence and place of work.

Other requirements that must be satisfied before employees can receive pay by payroll card include:

• A network of ATMs that offer free withdrawals;
• A method enabling a least one free withdrawal per pay period;
• Written statements, provided electronically or on paper, that include a monthly balance, plus a transaction history going back 12 months before the employee’s request; and
• Electronic balance notifications on a per day or per transaction basis.

Finally, if the employer does not offer a paper check option, it must retain the employee’s written consent for six years.

Devilish Details

As with most new laws and regulations, the practical difficulties will arise during implementation, particularly in outlier situations not squarely addressed by the rules.  The proposed New York rules are unique in imposing the seven business day waiting period. (Most employers now have new hires elect a pay method on their first day of employment.)  Under NYSDOL’s approach, employees could on the 8th work day theoretically be “required” to choose pay by either direct deposit or pay card; that way employees can get paid via their method of choice on their first pay day, after the end of a biweekly period.  That appears to be what NYSDOL has in mind, i.e., that’s how the administrative scheme is supposed to work.  But what happens if recent hire doesn’t choose a pay method on the 8th day or for some time thereafter, either because she refuses or is ill or simply forgets?  The employer obviously can’t default a recent hire to direct deposit if it hasn’t obtained that individual’s account information.  And, the New York rules state plainly that the employer can’t pay by pay card absent the employee’s consent, which appears to prohibit employers from defaulting the employee to a pay card.  Thus, the only feasible “default” method of pay would appear to be by paper check.

Similar difficulties arise if an employer wants to move current employees from a paper check system or option to an all-electronic system.  Suppose a third of the employer’s current workforce receives pay by paper check.  The employer can of course offer those employees a pay card option (so long as they have at least 7 business days to consider the option after having received the requisite information).  However, if at the end of the waiting period some employees either fail to respond or refuse to consent to pay by pay card, then it would appear those employees must continue to be paid by paper check.

45-Day Phase-In Period

The New York regulations are scheduled to take effect after a 45-day notice and comment period.  It’s conceivable that comments received during that period would cause the Department to revise its proposed rule.  It’s just as conceivable that the Department will issue the rules in final form either at or shortly after the notice/comment period ends.  Thus, to be safe, New York employers should assume they will need to be in compliance with the new rules on or about Monday, July 13, 2015 — 47 days after they issued on May 27.