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NYSDOL Issues New Regulations Requiring Notice and Consent for Direct Deposit and Payroll Debit Cards: Portions held invalid by Industrial Board of Appeals

In September 2016, the New York Department of Labor (NYSDOL) set out to enact new regulations on employers who use electronic payment methods such as payroll debit cards and direct deposit.  Drafts of the regulations and associated templates were released to the public for comment earlier this year and were slated to come into effect on March 7, 2017.

On February 16, however, the New York State Industrial Board of Appeals (NYSIBA) invalidated a good portion the proposed regulations.  The NYSIBA is an independent agency responsible for reviewing the reasonableness and validity of NYSDOL rules and regulations, and concluded that some of the provisions of the proposed regulations exceeded the scope of the NYSDOL’s authority.

NYSDOL has the authority to create regulations necessary and proper to the enforcement of New York’s labor laws, however, the regulation of banks and financial institutions is within the sole purview of the Department of Financial Services branch of the Federal Reserve. The NYSIBA found that an employer’s use of debit cards exceeds the employment relationship as governed by NYSDOL and the regulation of such is completely within the scope of the Department of Financial Services. For these reasons, the portions of the regulations that place restrictions of financial institutions were found invalid by the NYSIBA.

Despite their findings, the premise behind the regulations remained clear to the NYSIBA. The NYSDOL was attempting to protect low-wage workers who do not maintain traditional bank accounts.  Requiring employees to accept their pay by debit card often comes with associated fees for the employee while it is a cheaper alternative for employers.  In recognizing the legitimate concerns of the NYSDOL, the NYSIBA upheld the portions of the regulations preventing employers from charging any direct or indirect fees to employees to access their wages. The portions of the regulations prohibiting financial institutions from charging fees to employees using payroll debit cards, however, were overturned.

Under the new regulations as they were upheld by NYSIBA, employers are required to provide employees with written notice identifying all of the employee’s options for receiving their wages.  The written notice must also advise employees that the employer may not require them to accept wages by payroll debit card or direct deposit, and may not charge them any sort of fee to receive their wages. Employers are required to obtain voluntary written consent from employees at least seven business days before issuing a payment by payroll debit card or direct deposit.  Employers are likewise prohibited from making wage payment by payroll debit card or direct deposit a condition of employment.

Employers who currently pay employee wages via payroll debit card or direct deposit should review the new regulations and templates provided by the Commissioner, and ensure their policies are in compliance.  The regulations can be accessed on the New York State Department of Labor website: www.labor.ny.gov

Brody and Associates regularly advises management on complying with state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.