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February 02, 2005
Are Paycards Easy, Cheap--and Legal?

Paycards, those little plastic cards you can hand to your employees in lieu of a paper check, have many advantages for employees and employers alike. It can be awfully tempting, as an employer, to eliminate paper checks in favor of the less-expensive paycard. Employees like them because they don't necessarily have to have a bank account, and they can use the cards at any store that accepts a debit or credit card. And employers like them because they eliminate the possibility of forged or altered checks, not to mention the additional costs of processing reams of paper.

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Before you jump into mandatory use of paycards, though, you'll want to check on the labor laws in your state. According to the American Payroll Association (www.americanpayroll. org), you may find that your state has not yet addressed this new technology. As of December 2004, only three states--Delaware, Nevada, and Virginia--had taken specific regulatory action permitting the use of paycards. And one state, Vermont, determined that employers may not use paycards for payment of wages. In some states, employers are relying on laws covering direct deposits of pay, while others are choosing to wait until the law is clarified.

One of the sticking points appears to be that employers must pay employees without charging them any kind of fee. The American Payroll Association says this caveat dates to the era of company towns, when the employer may have owned stores, houses, and banks. The rule protected workers from being charged through automatic payroll deductions for goods or services provided by their employer. Because the use of a debit card is often accompanied by a fee, some employers are paying for at least one fee per person, per pay period, to avoid running afoul of the 'no fees' law.

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