More employers are turning to debit cards in lieu of paychecks to provide their employees with wages. However, an employer must make sure they meet all the requirements of the California labor code before they start this practice, or they may be liable for unpaid wages.

There are many reasons why an employer would want to use debit cards rather than checks. First, debit cards do not require the employer to print out checks and distribute them. Debit cards give the employer the freedom to basically use direct deposit with all employees, regardless of whether or not the employee uses a bank account.

However, employers often do not consider the hardships that employees face when using debit cards. First, some debit cards may require employees to pay fees on ATM withdrawals, or to find their balance. The cards also may automatically deduct payment during periods of inactivity.

Employers must always give their employees the option to be paid by direct deposit or debit card. This also means that the employer cannot require the employee to agree to be paid by a debit card as condition of employment. However, besides these requirements, there is not a lot of guidance as to what actually would entail a violation. Although the California Department of Industrial Relations Division of Labor Standards Enforcement provided an official opinion on the legality of debit cards several years ago, not many courts have analyzed the issue.

Employers may not pay employees with credits that can be used to purchase merchandise. The employer also may not receive any part of the employee’s wage paid; this means that kickback schemes between financial institutions can not provide the employer with a portion of the fees they collect. The full amount of the funds must also be available for at least 30 days after being issued. Further, the employer must provide a full wage statement that complies with Labor Code § 226(a).

An employer might also run into trouble if the fees imposed on an employee for the use of a debit card effectively reduces the employee’s wages to less than the minimum wage.

Wage and hour law is very complex; if you suspect that your employer has not properly paid you schedule a free consultation with the California employment law attorneys of the Law Offices of Michael S. Cunningham, LLP. Call (951) 213-4786 to speak with a wage and hour attorney today.