As more businesses jump on the payroll card bandwagon, lawmakers in New York are taking steps to make sure employees aren't saddled with excessive fees when their earnings are loaded on to the checking account alternative. This week state Sen. Patrick Gallivan and Assembly Majority Leader Joseph D. Morelle jointly introduced the Payroll Card Act. The legislation is designed to protect workers against card offerings that have not been subject to heavy regulation.
"Workers should not have to pay in order to get their pay," Attorney General Schneiderman said in a statement. "While payroll cards can be helpful for employees without bank accounts, programs often impose fees that chip away at people's hard-earned wages."
Payroll cards are soaring in popularity, especially in the restaurant industry. The National Restaurant Association estimates that approximately 30 percent of restaurant workers do not have access to traditional checking and savings accounts, and major companies like McDonald's and Subway use payroll cards as a payment option. However, a report from Attorney General Schneiderman's office makes it clear that these companies are not always offering payroll cards to help their workers. Instead, they are doing it to cut their own costs.
"Employers sometimes steer or require workers to receive wages by payroll card," the report states. "Forty percent of employers surveyed did not provide employees the option to receive their wages through a traditional paper check and another 31 percent discouraged the selection of a paper check."
"While some workers can successfully navigate the payroll card system and use their cards without incurring any fees, payroll cards can present significant challenges for many workers, particularly low-wage workers and those with limited financial and literacy skills," the report says. "Many employers do not offer their employees a meaningful choice as to whether they would like to enroll in a payroll card program in the first place."
The Payroll Card Act aims to address these issues. The proposal would require that employees could to be paid via payroll card, direct deposit or paper check, and it would also force employers to educate them on how to avoid fees. Additionally, the proposal would force employers to offer payroll cards with at least one ATM network where employees would not pay withdrawal fees.
Other states may want to follow in New York's footsteps. Aite Group, a financial advisory firm, estimates that nearly $70 billion will be loaded on to payroll cards by 2017.
Not sure if you should accept your paycheck with a banking alternative? Check out "3 questions to ask about payroll cards."