Here's a great example of when the leveling the playing field — giving consumers choice — could create enough friction to turn everyone, including the consumer, upside down and into knots.
Legislation currently pending in New York state could snarl direct deposit and ease of employee payments, as workers may have to “recommit” to having paychecks sent into existing bank accounts.
Those rules, first proposed in October 2015, and then revised in June, would mandate employers to offer up information to non-exempt employees tied to a slew of payments options, and requiring consent from those employees if they in fact want to get payment via direct deposit or via debit cards that would come preloaded with salaries.
The new rules, if codified, would mean that employers would be on the hook to give each and every employee every single payment option that’s offered by their company – with the goal in part to inform workers that they are not in fact required to stick with direct deposit, and can opt for ACH or cards and that they cannot be charged fees to access their paychecks. The consent forms already being used and submitted by employees must satisfy the disclosure requirements; if they don’t, they must resubmit their forms. If written consent via the employee is not in place, their employer has to stop submitting payments electronically, and must revert to paper check issuance.
For payroll cards, employers must offer up a list of locations where employees can gain access to and withdraw funds within a reasonable distance from home or workplace, and they may not be charged for such access.
Public comment is open on the rules through July 15, and thereafter the state can embrace the legislation while employers would subsequently have six months to get in compliance.
In an interview with PYMNTS, Bill Sullivan, senior director and group manager of government and industry relations at NACHA, the electronic payments association, said that the new rules “are really quite biased in favor of paper and particularly paper checks, because that is the default mechanism” tied to the new rules. The problems would arise with the consent mandate as the executive noted that as much as 82 percent of U.S. workers get their payments through direct deposit.
In a series of what Sullivan termed “unintended consequences,” the result could be that employees are in fact driven to embrace check cashing services, with attendant fees in place to cash those checks – a counterintuitive event, as Sullivan said: “I suspect this regulation is intended to limit fees on someone’s payroll.”
In addition, there could be other costs, as going toward other payments conduits, such as a bank, could “cause an employee to take a longer lunch hour, or have to leave work earlier to by a bank.” In the case that an employee goes on vacation, does not pick up a check or simply forgets to deposit that check, the consequences can be onerous, as debits scheduled, such as mortgage or medical payments can hit and effectively send an account into overdrawn status.
One way for New York to address its concerns about employee payments awareness would, Sullivan posited, be for the state to “tighten up some of the language that employers give employees when they register for either a payroll card or direct deposit or if they will be paid by check … just reminding them around all the existing controls surrounding direct deposit already.”
Separately, Bill Dunn, director of government relations at the American Payroll Association, said that the proposed legislation seems focused on payroll cares and a “solution without a problem.”
He noted that the payroll card industry has been under scrutiny and that the Attorney General’s office some years ago had received complaints that payroll cards were standing in violation of workers’ rights, with no findings to those allegations. He told PYMNTS that the typical profile of a worker using a payroll card is one that is a weekly employee, and one who might not have a bank account.
Against that backdrop, said Dunn, the New York state rules could have a negative impact where “the most onerous is the seven-day waiting period” that would come in the wake of an employee’s choosing to take on a payroll card. “These people want the card,” he stated, “and now must wait days to get it.” The fact that they must now wait to get the card means that they now have to pay a fee to get a paper check issued and take it to a cashing establishment. The “opt in” nature of the regulations also would prove a regulatory headache for firms, said Dunn, where larger enterprises must navigate paperwork and consent all over again – and “what would be consumer protection is now an inconvenience.”