As pay card usage picks up steam, you may consider using them in your small business. But before you decide to implement this payment method, you must understand pay card laws by state.
Many states have laws in place that prohibit, limit, or allow employers to use pay cards. Violating state (and federal) payroll debit card laws can result in penalties.
Brush up on what pay cards are, alternatives, federal laws, and pay card laws by state.
What is a pay card?
A pay card, or payroll card, is a payment method where employers load employee net wages onto a prepaid card. Pay cards work similarly to debit cards. However, only your employees’ paychecks can be put on the reloadable cards.
Employees can use pay cards to make purchases and payments, or they can withdraw cash at ATMs or in banks.
There are two categories of pay cards:
- Branded
- Nonbranded
Branded pay cards include Visa, MasterCard, American Express, and Discover. Nonbranded pay cards belong to ATM or POS networks, like STAR or Pulse. Most pay cards are branded.
One benefit of pay cards is that employees do not need to have bank accounts to receive their wages. According to one survey, 5.4% of Americans were unbanked in 2019. Pay cards could be a convenient alternative to direct deposit for both banked and unbanked employees.
Employers who pay employees via pay cards don’t need to worry about physically handing their workers checks or cash. Instead, employers can electronically load wages, regardless of where they or their employees are.
As more employers and employees come to recognize the benefits of pay cards, the more popular this payment option becomes.
In 2019, 8% of U.S. households depended on pay cards.
Before rushing to pay employees via pay card, there are a few things you need to consider:
- Employer and employee fees
- Security risks associated with lost cards
- Federal and state payroll card regulations
- Pay card alternatives
Pay card alternatives
Remember, pay cards are just one of the ways to pay employees. You may also opt for paying employees through direct deposit, paychecks, or cash.
Keep in mind that pay card alternatives come with their own rules and regulations. For example, there are state laws on mandatory direct deposit that you need to follow.
Federal payroll card regulations
Before diving into pay card laws by state, familiarize yourself with federal payroll card regulations.
There are two main rules associated with payroll cards that employers must follow:
- Fair Labor Standards Act (FLSA)
- The Electronic Fund Transfer Act and Regulation E
Under the FLSA, you cannot pay employees below the minimum wage. Pay card fees can lower an employee’s wages below the minimum wage. Let employees know about withdrawal and replacement fees. And, monitor fees so you don’t violate FLSA rules.
The Electronic Fund Transfer Act and Regulation E prohibit employers from forcing employees to receive wages via pay card. You must offer at least one other payment option in addition to pay cards.
Also, provide employees with a pay stub if the payroll card vendor does not. That way, employees can view their gross wages, deductions, and net wages.
Because pay cards involve a payroll card program vendor, verify that the vendor complies with the following rules:
- Federal Electronic Fund Transfer Act and Regulation E protections, including disclosures, unauthorized transactions, etc.
- Card operating rules (Mastercard, Visa, Discover)
- Account access for employees
- Security
- Anti-laundering
Follow pay card regulations when deciding to offer pay cards to employees. And, make sure you comply with state laws.
Pay card laws by state
Over half of the states have laws regarding whether employers can use pay cards. States that do not have specific pay card laws follow federal regulations.
Pay card laws by state often revolve around the following:
- Other payment methods
- The ability to change payment method
- Free withdrawals per pay period
- Fee prohibition
- Disclosure
- Employee consent
Take a look at the chart below for state payroll debit card laws.
| State | Law |
|---|---|
| Alabama | No law |
| Alaska | No law |
| Arizona | An employer can pay employees with a pay card if the employee does not provide consent or choose a financial institution for direct deposit. However, employees must get one free withdrawal per pay period and be aware of all fees. |
| Arkansas | No law |
| California | Employees can receive their wages via pay cards as long as they comply with state laws governing payment by direct deposit or check. |
| Colorado | Employees must receive free access to their wages at least once per pay period, or they can choose a different payment method. |
| Connecticut | No law |
| D.C. | No law |
| Delaware | Employees can receive their wages on a pay card as long as they have full access to their wages at a bank close to work without incurring a fee. |
| Florida | Pay cards are acceptable methods for employees to receive wages, but the card must be supported by sufficient funds for a minimum of 30 days. |
| Georgia | Employees must receive a written disclosure of fees and can choose to receive a check or direct deposit at any time. |
| Hawaii | An employer must give employees the option of selecting pay card, check, or direct deposit. Employees must give their consent and receive a written disclosure. If the employee wants to select a different payment method, they can do so at any time. Money on the pay card cannot expire. The pay card vendor must provide one free replacement each year and allow employees to make at least three free withdrawals per pay period. Employees must be able to access their account. Also, employees cannot be fined for overdrawing from their account. |
| Idaho | No law |
| Illinois | Employers can pay employees with pay cards only if they provide the employee with a written notice, offer another payment method, and obtain the employee’s written consent. |
| Indiana | No law |
| Iowa | Employees must be offered other payment methods along with pay cards, and they cannot incur a fee. |
| Kansas | Employers can require employees to receive their wages via pay cards if the employee receives at least one free withdrawal each pay period. Employees are responsible for replacement fees. |
| Kentucky | Employees can use payroll cards at no cost and can switch payment options at any time. Pay cards expire after two years. |
| Louisiana | No law |
| Maine | The employee must be able to make one free withdrawal or choose another payment method. |
| Maryland | Employees must authorize receiving wages via pay card and be aware of any fees. |
| Michigan | Employees must receive at least one free withdrawal or transfer per pay period. And, they can choose a new payment method at any time. Employers are responsible for giving employees written verification of the employee’s rights and let them know in advance if there will be any changes. |
| Minnesota | Employees must receive one free withdrawal, receive one free transaction history per month upon request, and must give their consent to receive a pay card. Employees can also change the payment method at any time. |
| Mississippi | No law |
| Missouri | If an employee does not have a checking or savings account or does not give information for setting up direct deposit, employers can pay them with a payroll card. |
| Montana | Employees must have the option to receive payment via check and consent to getting paid with a pay card. And, they must be able to withdraw without a fee, receive statements, and receive a written disclosure before signing up for a pay card. |
| Nebraska | Employees should receive one free withdrawal per pay period. Employers must provide a wage statement each pay period. Employers cannot pass payroll card fees onto employees. |
| Nevada | Employees must receive at least one free transaction, written disclosure, and they must give their consent. |
| New Hampshire | An employee must get one free withdrawal per pay period. Employees must also receive written disclosure before starting as well as the option of receiving a check. If the pay card has an expiration date, the employer is responsible for getting employees new ones and covering the cost. |
| New Jersey | Employee consent is required, and they must be able to choose a new payment method at any time. Employers are required to provide a written disclosure. And, employees can make one free withdrawal at least once per pay period. |
| New Mexico | No law |
| New York | There can be no fees for employees to withdraw from their pay card. Employees must receive a written disclosure and have a bank to make withdrawals near their work. |
| North Carolina | Employees must be able to withdraw all amounts on payday. |
| North Dakota | Employees must be given a choice between pay cards and direct deposit. Also, the pay card must be issued by a federally insured bank or credit union, and the money must be insured by the FDIC. |
| Ohio | No law |
| Oklahoma | Employees cannot be charged a fee. |
| Oregon | Employees must be able to withdraw the entire amount of their first pay without fees, select a different payment method, and give consent. |
| Pennsylvania | Employees must consent to the use of pay cards in writing, receive one free withdrawal per pay period, and can stop receiving their wages on pay cards at any time. There can be no fees associated with the pay card for employees, and employees must be able to check the balance electronically or via phone. |
| Rhode Island | Employees must be allowed at least one free withdrawal per pay period. They must also authorize the payment of wages via pay card and be able to check their account balance at any time. |
| South Carolina | No law |
| South Dakota | No law |
| Tennessee | The employee must be able to withdraw or transfer their wages from the pay card, receive one free withdrawal or transfer per pay period, have the option of direct deposit, and receive a written disclosure from the employer. If an employee does not designate a financial institution for direct deposit, employers can choose to pay via pay card. |
| Texas | Employers can decide to pay employees via pay cards as long as they notify the employee in writing, give employees a form they can fill out to request an alternate payment method, and obtain necessary information from the employee to pay them via pay cards. |
| Utah | Employees can withdraw their full paycheck without fees, and the full amount must be on their pay card on payday. |
| Vermont | An employee must give written consent after receiving a disclosure on pay cards. Employees must receive branded pay cards, at least three free withdrawals, and one free replacement card per year. No employer fees associated with pay cards can be passed on to employees. And, employees can choose to stop receiving their wages on pay cards at any time. |
| Virginia | Employers can use pay cards without the employee’s consent for those hired after January 1, 2010 if the employee does not designate a financial institution for direct deposit. Employees must be allowed one or more free withdrawals per pay period. |
| Washington | No law |
| West Virginia | Employees and employers must agree in writing, and the payroll card account must be insured by the FDIC. |
| Wisconsin | No law |
| Wyoming | No law |
Check with your state department of labor for more information on pay card laws by state.
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This article is updated from its original publication date of June 5, 2019.
This is not intended as legal advice; for more information, please click here.
