Check cashing ‘convenience fee’ is an illegal deduction under state wage law — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Check cashing ‘convenience fee’ is an illegal deduction under state wage law

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in Small Business Tax Deduction Strategies

If you force an employee to pay a fee to cash his paycheck, you’re violating the paycheck-deduction provisions of the New York Labor Law.

That’s true even if the employee gives you written permission, the Court of Appeals has ruled.

Recent case: Labor Ready, which employs day laborers in New York state, says most of its employees prefer to be paid daily since they often live in rooming houses that charge daily rent.

Because many of the day laborers don’t have bank accounts, they can opt to be paid via cash voucher instead. Once they sign a written agreement, Labor Ready charges them a small fee to cash the vouchers at several centers, which the company owns.

A worker challenged the practice, saying it was a violation of the Labor Law’s Section 193, which makes it illegal to make a payroll deduction unless it’s for the employee’s benefit.

Labor Ready argued that the deductions (which netted the company $8.3 million per year nationwide) were a convenience for the day laborers. They could cash the vouchers in a safe setting instead of receiving cash at the work site.

But the New York Court of Appeals agreed with the workers. It said Section 193 was originally passed to prohibit employers from deducting for company housing or issuing vouchers that workers could spend only in the company store. Those convenience fees were similar to those types of restrictions, the court said. (In the Matter of Linda Angello v. Labor Ready, No. 149, Court of Appeals of New York, 2006)

Final tip: If you pay employees via a debit card as some employers do, don’t charge a fee to access the funds initially.
Employees should be able to withdraw the entire balance in one transaction without a fee.

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