New York Paycard and Direct Deposit Final Regulations Impose Many New Employer Requirements, Restrictions

Author: Rena Pirsos, XpertHR Legal Editor

September 29, 2016

After issuing three drafts of proposed regulations and requests for employer comments during a regulatory process that began more than one year ago, the New York State Department of Labor has issued final regulations governing the use of paycards and direct deposit to pay employees' wages.

Although the law in New York already permits employers to pay employees via these two popular wage payment methods, in addition to cash and paper paychecks, the final regulations provide many new detailed requirements and restrictions. Employers should act now to be sure their procedures, policies and required forms will be in compliance by the March 7, 2017, effective date.

Currently, New York employers that offer direct deposit have to get employees' advance written consent, excluding certain FLSA-exempt employees. Current paycard restrictions only vaguely require employers to provide employees with advance written consent, full notice and disclosure of all terms and conditions, immediate access to full wages, and prohibit the imposition of employee withdrawal fees and limitations on the number of withdrawals.

The final regulations go much farther and provide much-needed employer guidance.

For both paycards and direct deposits, employers will not only have to obtain employees' advance, written consent (on paper or electronically), but they will have to provide them with a written notice that includes all of the following information:

  • A plain language description of employees' available wage payment method options;
  • A statement that the employer may not require employees to accept wage payments by paycard or direct deposit;
  • A statement that employees may not be charged any fees for services they need to access their wages in full; and
  • For employees who opt to be paid by paycard, a list of locations where they can access and withdraw their wages at no charge within reasonable proximity to their place of residence or work.

For paycards only, an employer must wait seven business days after receiving an employee's consent before it can make the employee's first wage payment. And, if there is a collective bargaining agreement in the mix, the employer must also obtain the union's approval before issuing paycards.

Employers may not mandate either of the two wage payment methods, and they are prohibited from coercing or intimidating employees to obtain their consent.

If an employer wants to provide the notice and consent forms electronically, employees must be able to view and print them at work for free, and they must be notified of this right.

Moreover, employers will have to provide the notices in English and an employee's primary language, if other than English. Although not yet available, the New York Department of Labor will make notice templates available in several languages for employers to distribute to employees.

For employers that have already been paying employees by paycard or direct deposit, any pre-March 7, 2017, employee consents will remain valid only if the employer:

  • Complies with the new notice requirements detailed in the final regulations before March 7; and
  • Expressly notifies employees that they have the right to withdraw their prior consent at any time (an employer must honor a consent withdrawal by paying the employee by another method of his or her choice within two pay periods).

Direct Deposit Recordkeeping Requirement

Employers must retain consents to direct deposit for the full length of the employees' employment and for six years following the employees' last wage payment. An employer must also give each affected employee a copy of his or her consent.

Additional Requirements for Paycards

In addition to the notice and consent requirements applicable to both wage payment methods, employers must comply with still more for paycards. For example:

  • Automated teller machines (ATMs) must be free, allow full pay accessibility and be located within a reasonable travel distance from work or home;
  • Employees must have at least one free method to withdraw their total net wages for each pay period, or any remaining balance on their paycard;
  • Employers or their agents cannot charge employees any direct or indirect fees for many services, which are listed in the final regulations (e.g., point of sale transactions; overdraft, shortage or low-balance status; customer service); and
  • Employees are entitled to at least 30 days' written notice (all language requirements applicable to notices apply here as well) before any changes are made to terms and conditions, especially changes to the itemized list of fees (employees must be reimbursed for any new or increased fees incurred before the 30-day period expires).