As of May 21, 2010, Vermont joins a growing number of states who now allow employers to pay employee wages with payroll debit cards. The new law, Act 115 (S.58), amends Vermont State Code §§ 342 and 343 to permit an employer to credit an employee’s wages to a “payroll card account directly or indirectly established . . . in a federally insured depository institution.” Before the employer can do so, however, it must obtain the employee’s written consent, and fully disclose the terms and conditions of the payroll card account option. Furthermore, the employer may not pass on any of the expenses associated with the payroll card account to the employee nor may the employer receive any remuneration for using the card at the employee’s expense. Also, Vermont’s Department of Banking, Insurance, Securities, and Health Care Administration, the agency charged with regulating the Act, may impose additional obligations on employers who utilize payroll debit cards.

Before the passage of Act 115, Vermont employers could only pay wages by check, direct deposit, or cash. Indeed, the state’s Department of Labor had long maintained that, “A debit card does not fit the definition of cash or check defined by the [Vermont Uniform Commercial Code].” Now, employers have a cost-effective alternative to writing checks for those employees who lack or refuse to use direct deposit.

The problem for employers, however, is that the payroll debit card alternative remains just that – an alternative. Because an employee’s written consent must first be obtained, employers are prohibited from simply mandating payroll debit cards for those employees who lack or refuse to use direct deposit. Thus, employers may still have to incur the expense of paying employee wages with checks. In fact, the average, annual cost to employers in having to generate replacement checks and checks for exception pay is $48 million.

According to its drafters, the Act is a win-win for all parties: “The intent of this act is to provide employees with a convenient, safe, and flexible way to receive wages and to reduce employers’ payroll costs by allowing for the transfer of wages to a payroll card account.”

This entry was written by Milton Castro.