Connecticut Authorizes Use of Payroll Cards to Pay Employees

On June 7, 2016, Connecticut Governor Dannel P. Malloy signed into law a new statute authorizing employers to use payroll cards to pay employees. Previously, the Connecticut Department of Labor's position was such cards were not authorized under state law and could not be used.  Connecticut now joins the majority of states in allowing this payment method.1

“An Act Allowing Employers to Pay Wages Using Payroll Cards” (S.B. 211, Public Act 16-125) will take effect on October 1, 2016. The Act defines a “payroll card” as “a stored value card or other device used by an employee to access wages from a payroll card account and that is redeemable at the employee’s election at multiple unaffiliated merchants or service providers, bank branches or automated teller machines.”  A “payroll card account” is defined as any bank or credit union account that is established through an employer to which transfers of wages, salary or compensation are made and accessed through a payroll card. 

The Act prevents employers that use payroll cards from passing on any associated costs to the employees.2  In addition, if payroll cards are used, they must be associated with an ATM network with a “substantial number” of in-network ATMs.  Employees must be permitted to make at least three withdrawals without fees per pay period, and withdrawal of the full amount of the net wages, salary or compensation for the pay period must be permitted at a convenient location.  In addition, employers must provide employees the ability to check, free of charge, payroll card account balances 24 hours a day, 7 days a week by an automated phone system, teller machine, or electronically.  The payroll card account shall not allow for overdrafts, to the extent possible, and no fees or interest may be imposed for any overdrafts or for the first two declined transactions of each month. 

Besides limiting fees charged to employees, the legislation aims to protect employees from the loss of funds.  While a payroll card may include an expiration date, funds in a payroll card account do not expire.  If a card bears an expiration date, the employee must be provided with a free replacement card prior to the expiration date, during the period when wages, salary or compensation are applied to the payroll card account by the employer and for 60 days following the employer’s last transfer to the account.  Funds in a payroll card account are subject to the escheat provisions of Conn. Gen. Stat. Sec. 3-57a.  A payroll card account that is used to receive only employee wages, salary or other compensation will be exempt from execution or attachment by the employer’s creditors and under the financial institution execution statute, Conn. Gen. Stat. § 52-367b. 

Written Authorization from Employee

The Act requires that an employee voluntarily and expressly authorize payment of wages, salary or other compensation using a payroll card.  The authorization may be in writing or electronic, and must be made without intimidation or coercion by the employer and without fear of reprisal.  The Act also prohibits an employer from requiring employees to accept wage payments through payroll cards and requires employers to pay wages by check or through direct deposit in lieu of payroll cards for employees who do not agree to payment via payroll cards.  

An employee with a payroll card is permitted to notify his or her employer that he or she wants to be paid by direct deposit into a bank or credit union account or by negotiable check.  An employer receiving such a notice must start paying by direct deposit or by check no later than 14 days after receiving the notice. 

Required Notice to Employee

The Act requires the employer to provide employees with clear and conspicuous written notice before starting the use of payroll cards.  The required notice must include the following information:

  1. that payment by means of payroll card is voluntary, and the employee can elect to be paid by direct deposit or negotiable check;
  2. the terms and conditions for the use of the payroll card, including an itemized list of any associated fees;
  3. the methods available for employees to access their wages and to avoid or minimize any fees for use of the payroll card;
  4. the methods available for employees to check their payroll card balances, without incurring any fees; and
  5. a statement that third parties may assess fees.

Notice must be provided in the language normally used by the employer to communicate employment-related policies. 

The legislation repeals the provisions of Conn. Gen. Stat. Sec. 31-13a regarding an employer’s obligation to provide a record of hours worked. Under the new law, an employer is required to furnish with each wage payment, either in writing or—with the employee’s explicit consent—electronically, a record of hours worked, gross earnings showing straight time and overtime as separate entries, itemized deductions and net earnings.

Recommendations for Employers

Employers may welcome the news that they now have access to another method of paying their employees.  They must be aware, however, that there are new responsibilities associated with the use of payroll cards.  Employers who use third parties for payroll should review carefully the requirements of the Act with their payroll vendors to ensure compliance with Connecticut law.  Employers who handle payroll in-house should train staff on the new law; multi-state employers may need to highlight differences between the Connecticut payroll card provisions and those of other states.  Employers should also take steps to ensure that their human resources staff members understand the obligations imposed by the Act. As a practical matter, employers may want to prepare materials to advise their employees of the new payroll option and provide them with a designated representative to address any questions. 

Employers should consult with experienced employment counsel for review of their pay practices. 

See Footnotes

1 According to Business Management Daily’s Payroll Legal Alert, as of May 2016 there are 32 states with laws addressing paycards. See (May 2016). In addition, at least 10 of the remaining states informally permit the use of paycards despite the absence of legislation explicitly authorizing such a wage payment option.

2 The legislation specifically prevents the employer and the payroll card issuer from assessing fees to the employee for the following:  issuance of the initial payroll card; transfer of wages, salary or compensation from the employer to the payroll card account; maintaining a payroll card account; providing 1 replacement card per calendar year at employee’s request; closing the payroll card account; maintaining a minimal balance; inactivity of the payroll card account for the first 12 months of any such inactivity; and/or point of sale transactions.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.