New Direct Deposit and Paycard Regulations

Employers Must Review Pay Practices

Direct Deposit Authorization

The New York State Department of Labor has adopted new rules intended to protect employees by clarifying their options on how to receive their wages. The practical effect of the regulations is to create additional disclosure and authorization steps for employers in order to pay wages.

The regulations will go into effect on March 7, 2017. The regulations require employers to provide written notification to all employees that includes:

  •  A plain language description of all the employee's options for receiving wages (i.e, by check, direct deposit and/or debit card);
  • A statement that the employer may not require the employee to accept wages by payroll debit card or direct deposit;
  • A statement that the employee who receives their wages via debit card may not be charged any fees for services necessary to access his/her wages in full; and
  • If offering an option to receive wages by payroll debit card, additional information, including the funds on the debit card never expire, and a list of locations (that must be in “reasonable proximity” to the workplace or residence of the employee) where wages can be withdrawn.

Employers must also secure employees' written consent following receipt of such notice. The written notice and consent must be provided in English and in the primary language of the employee; the Department of Labor intends to provide templates.  A copy of the consent must be provided to the employee and a copy must be retained by the employer during the employee's employment and for six (6) years following the last payment by direct deposit.

Covered Employees

The new notification rules apply to all employees who work in New York, except for those employed in a bona fide executive, administrative, or professional capacity who earn more than $900 per week, or employees on a farm not in connection with a factory. 

What Does This Mean for Employers?

According to an April 2016 survey by the National Automated Clearing House Association (NACHA) 82% of workers nationwide use direct deposit for receiving their wages, so this regulation will likely hit almost every employer.

Prior to the regulation’s effective date employers should review their pay practices to determine which employees receive wages via direct deposit and what, if any, written documentation exists in their personnel file showing that the employee consented to the direct deposit. The Department of Labor has clarified that direct deposit authorizations obtained from employees prior to the effective date of the new rule will remain valid if employees are also provided with notices that comply with the new regulations. 

If no such documentation can be found then employers will need to get the signed consent of every employee that currently has direct deposit, along with distributing the notice.

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