Sec 5: Paying the Employee

Question 1

Pay Frequency - What laws govern how often an ER must pay its EE’s?

Answer 1

State laws typically regulate pay frequency as the FLSA or the IRC does not cover. State rules also guide the lag time before wages must be paid after the pay period ends.

Question 2

Payment of Termination

Answer 2

States have separate rules governing when EE’s must be paid when they separate from employment. EE’s should swiftly receive all earned wages following their final workday, including accrued benefits and commissions. Some states have rules about mandatory severance pay under particular circumstances such as company closures. Adherence to these regulations is critical for
compliance and to avoid potential legal consequences.

Question 3

Payment Methods - Cash or Check

Answer 3

All states and the District of Columbia permit employers to pay wages by cash or check. The financial institution that cashes checks should provide services without incurring any fees. Most states require that the financial institution cashing employee paychecks be located in the state where the employees work, while some require that the financial institution be located conveniently for the employees. Companies should use dedicated payroll accounts to facilitate transactions and have clear stop-payment procedures to mitigate risks

Question 4

Direct Deposits (EFT) - 82% people receive DD according to Nacha

Answer 4

Advantages for ER’s:
* Lost or stolen checks
* Unclaimed or uncashed checks
* Employee time off to cash checks
* Storage of cashed checks and related documents
* Early preparation of vacation checks

Question 5

DD - How the process works

Answer 5

1. Company (ER) prepares an automated file of DD records indicating where the EE’s pay is to go
2. The file is sent to a financial institution to process the file know as Originating Depository Financial Institution (ODFI)
3. ODFI processes the file through the Automated Clearing House (ACH) network operating under Nacha
4. ACH Network operated by the Federal Reserve Bank and the Electronic Payments Network. ACH operators deliver files to the Receiving Depository Financial Institution (RDFI)
5. RDFIs that are designated by the EE’s accept the electronic payments, post them according to the ACH rules with a statement

Question 6

Who regulates EFT and establishes basic rights, requirements and liabilities for the protection of EE’s being paid through EFT?

Answer 6

Regulation E, Title IX of the Consumer Credit Protection Sct, Electronic Fund Transfer Act

Question 7

The cost of DD to the ER

Answer 7

include the employer’s loss of interest (“float”) on payroll
funds from the time a check is issued until the employee’s bank clears it, the payroll service provider’s charge for preparing the file for the ODFI, the ODFI’s charges for its processing services, and bank service charges in those states where employees must be allowed to withdraw their wages in full

Question 8

Electronic Paycards

Answer 8

Alterative payment to employees who are “unbanked” Adhere to Federal and state laws regarding the voluntary nature and fee structure of paycards.

Question 9

Branded vs. nonbranded paycards

Answer 9

Branded cards have either a Visa®, MasterCard® or Discover Network® logo imprinted on them. Personalized, has a 4 digit PIN, takes 7-10 days.
Nonbranded stored- value paycards have the logos of one or more major ATM or POS networks imprinted on them (e.g., STAR®, Pulse®, NYCE®, etc.) Require PIN for ALL transactions. Purchases and withdrawals with a nonbranded card can only take place if the host computer has authorized them by acknowledging that there is enough in the account to fund the transaction (positive funds authorization)

Question 10

Compliance Issues with Paycards

Answer 10

The compliance issues are similar to those that apply
to employee payments made by direct deposit, including laws and rules governing ACH transactions, employee privacy, and escheatment.

Question 11

Who regulates paycards?

Answer 11

The Federal Reserve Board (FRB) issued a final rule regarding the coverage of electronic paycard accounts under Regulation E, which implements the Electronic Fund Transfer Act.

Question 12

Earned Wage Access (EWA)

Answer 12

Also called on- demand pay, these products allow employees to contract with a provider so they can request a certain amount (or share) of accrued wages to be paid to them prior to payday. These funds are then recouped by the provider via payroll deductions or bank account debits on the subsequent payday.

Question 13

Extra Paydays caused by the Calendar

Answer 13

Because a normal year has 365 days, one day of the week will occur 53 times in a year (52 weeks x 7 days/week = 364 days). In leap
years, which have 366 days, two days of the week will occur 53 times. Occur for W and BW. 53 rather than 52 for W payers, 27 rather than 26 for BW payers - MONDAY and TUESDAYS

Question 14

International ACH Transaction (IAT)

Answer 14

Office of Foreign Assets Control (OFAC) made it necessary for Nacha to adopt rules creating special req’s for IAT.
The rules require that IAT be coded with information identifying them as IATs. Financial institutions are required to block any IAT that is not coded properly. The IAT format also requires the permanent addresses of both the payer and the payee