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North Carolina Allows Use of Payroll Debit Cards With Certain Conditions

    Client Alerts
  • January 27, 2012

A growing number of employers are considering use of payroll debit cards in lieu of paper checks or direct deposit. These employers typically deal with lower wage employees who sometimes complain about fees required to maintain traditional bank accounts. From the employer's perspective, the cards can reduce paperwork and accompanying payroll expenses. In 2005, the North Carolina Department of Labor issued a fact sheet setting forth its position on use of debit cards for payroll purposes.

NCDOL allows such use with two conditions. First, the employee must have access to all wages on the scheduled payday. Second, the cards must allow at least one use by the employee on the payday without any administrative fees. Subsequent fees can be applied by the card issuer without employee consent, but such fees cannot reduce wages below minimum wage.

South Carolina has not expressed any opinion on use of payroll debit cards, and other states' rules vary. Almost all banks and financial institutions offering such cards allow multiple opportunities for employees to make ATM or teller withdrawals with no fees. These companies typically provide online access for card balances as well as required pay stub information.

Some employers have expressed concern that issuance of debit cards in lieu of direct deposit will tempt employees to use the cards to make impulse purchases rather than budget expenses between pay periods. North Carolina employers considering conversion to a payroll debit card system should carefully review legal requirements and the impact of the changes on employees before deciding to move to this system. The NCDOL fact sheet can be found here.