PA Decision Could Have a Ripple Effect on Payroll Nationwide

young man hands holding credit card and using phoneThe recent decision reached by a state court in Pennsylvania is good news for workers in that state being forced to accept wages through payroll debit cards. The decision could also have a nationwide ripple effect on payroll as more companies look at debit cards as a means of paying workers. The next few months will determine how much influence the Pennsylvania case has.

The case in question revolved around owners of a fast food franchise that paid employees only through payroll debit cards. Workers had no choice in the matter. However, the company was sued on the premise that forcing payment through payroll debit cards was a violation of Pennsylvania’s Wage and Payment Collection Law. Plaintiffs argued that the law requires wages to be paid “in lawful money of the United States or check.”

The court agreed with the plaintiffs despite the defendant’s argument that payroll debit cards should be afforded the same legal status as direct deposit. Lawyers for the defendants argued that because the state legislature approved direct deposit as the functional equivalent of cash and checks, payroll debit cards should also be a functional equivalent.

Payroll Debit Cards Cost Money

On the surface, it may seem as though the defendants have a valid argument. But closer scrutiny clearly shows they don’t. As the court so eloquently explained, paper checks and direct deposit do not cost employees anything to use. Employees receive the full value of their wages when an employer utilizes one of these two options. The same cannot be said for payroll debit cards.

Debit cards of every kind come with at least a minimum processing fee – this is how debit card producers make their money. But most also come with over-the-counter transaction fees and extra fees for inactivity. Therefore, it actually costs employees money to access their pay. This, the court determined, disqualifies payroll debit cards as functional equivalents.

An Option, But Not Mandatory

Currently, several states allow the possibility of receiving wages via the payroll debit card. Other states are considering allowing the option. What most expect from the Pennsylvania decision is that states just getting on board will be sure that their rules do not allow employers to make payroll debit cards mandatory.

Any such action by legislatures would be entirely reasonable. It would be one thing for a company to work out a deal where they pay all the fees and charges associated with pay cards. But in the absence of any such move by employers, forcing workers to accept wages in a format that obliges them to spend money just to access what they earn is clearly not in accordance with generally accepted agreements between employers and workers. Payroll companies that offer pay cards, like BenefitMall for example, will have to make sure employers know that these can only be offered as one option to workers.

Given the actions of the Pennsylvania court, it’s hard to imagine any other states would be quick to write rules allowing companies to force payroll debit cards on their workers. Quite to the contrary, we may now see some governing bodies move in just the opposite direction by banning payroll debit cards altogether. This is not to say that doing so is either right or wrong, but simply to say some states may want to avoid what happened in Pennsylvania.

Payroll debit cards are still in the minority as a means of paying workers. But as they catch on, it will be interesting to see how the states decide to regulate them.

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