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Employer sued for ‘forcing’ employees to take paycards

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in Office Management,Payroll Management

The lawsuit hit a Pennsylvania state court in June and came to politicians’ attention shortly after that. Low-wage employees initiated a class-action lawsuit against their employer, alleging that they were forced to receive their wages via paycards, thus incurring fees for accessing their pay.

The lawsuit asks the employer to pony up for those fees. Don’t get caught in a similar situation.

Store manager’s missteps. Employees claim that the store manager told them they had to activate their paycards so they could be paid. Employees were automatically enrolled in the paycard program, and weren’t offered another option, such as direct deposit or checks.

Employees’ first over-the-counter withdrawals were free, which complies with state paycard laws. So it was possible for employees to receive their entire net pay fee-free. However, employees weren’t made aware of that. According to the lawsuit, employees could be subject to the following fees:

  • $1.50 for each ATM withdrawal
  • $5 for the second and all subsequent over-the-­counter withdrawals
  • $1 per ATM balance inquiry
  • $15 to replace a lost card
  • 50¢ for each declined transaction
  • $10 per check to close an account
  • $10 per month inactivity fee, which applied after 90 days.

• GUESS WHO’S WATCHING? In response to the Pennsylvania lawsuit, the New York State Attorney General launched an investigation of 20 large employers in that state. In addition, 16 senators sent letters to Richard Cordray, the head of the Consumer Financial Protection Bureau, and Seth Harris, then acting Secretary of Labor, requesting that these agencies weigh in on the fee issue.

State law particulars. Pennsylvania has no law governing paycards, which may mean that anything goes—until an employer gets hauled into court, of course. Pennsylvania does, however, have a minimum wage law, which prohibits employers from reducing employees’ wages to below the minimum wage. Paycard fees may do just that.

Employees must consent to paycards in California, Colorado, Delaware, Florida, Iowa, Maine, Maryland, Minnesota, Montana, Nevada, New Hamp­­shire, New Jersey, New York, North Dakota, Okla­­homa, Oregon, Texas, Utah, Vermont and West Virginia.

Employers in Arizona, Kansas, Michigan, North Carolina, Tennessee and Virginia may mandate paycard use, if certain requirements are met.

GOOD PAY PRACTICES: First, review your state law to determine whether paycards can be mandatory. If not, cancel any automatic enrollment program, and explain the potential liability of forced paycard use to upper management.

Second, take the payment decision out of managers’ hands by preparing a welcome packet for new hires. Reviewing the pay options with new hires in person will ensure that they understand their rights; you can also assure them that they won’t be disciplined for requesting another payment option.

Finally, make opting out of the paycard program as easy as possible.

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