State Switches To EFT Payments

February 1, 2005
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MUSKEGON — Employers can pay employees by direct deposit, electronic transfer or payroll debit card, but it's still up to employees to decide whether they want to receive their pay electronically or stick with the traditional paper check.

A new amendment to the Payment and Wages Act, effective Jan. 3, was originally intended to give employers the right to implement any of those payment methods as the primary payroll vehicle without employee consent.

As originally proposed, PA 534 was considered a "big deal" because employers had never had the right to mandate direct deposit for employees before.

Rob Dubault, a labor and employment attorney in Warner Norcross & Judd's Muskegon office, says that all changed in the 11th hour. As passed, the legislation retains the employee consent requirement.

"Evidently, the governor wasn't comfortable that her constituents would be happy with her if she signed off on this legislation," Dubault said. "She said she wouldn't do it, so the bill was modified."

The result is that an employer can pay by direct deposit or payroll debit card, but still must have the employee's consent before doing it. Now it's an opt-in system rather than an opt-out system, Dubault said. The employee has to agree that it's the way he wants his wages paid.

He said there's one very narrow exception, however.

The act states that an employer paying wages by payroll debit card to one or more employees as of Jan. 1 this year, may pay wages to any employee by payroll debit card without obtaining individual consent.

"Evidently, if you were doing that before, those few employers could now mandate that everybody be paid by payroll debit card," Dubault said. "Payment by payroll debit card is not very common, so it probably won't have that much effect."

PA 534 also prohibits employers from passing on to employees any fees or costs incurred in connection with establishing a new payroll payment process.

"Some of the initial communications were not quite clear on what this new law meant," Dubault said. "Quite frankly, this is the way it has been for the past several years, and, unfortunately, it really doesn't change the way private sector employers have been doing business."

However, the amendatory act piggybacked on the passage of PA No. 533 — new legislation requiring that all payroll and payments to non-classified state employees, elected and appointed officials be paid by electronic funds transfer (EFT) beginning Oct. 1 this year.

The new law gives two agencies — the Department of Community Health and the Family Independence Agency — until Oct. 1, 2006, to effect that change.

The act further requires that all state agencies pay contracts for goods or services by EFT beginning this October — again excepting the two agencies mentioned above.

According to the House Fiscal Agency, Act 534 doesn't have any fiscal impact on state or local government units, but Act 533 will translate into some savings for the state of Michigan.

Robin Risko, senior fiscal analyst with the agency, said the state currently pays 59 cents to process and mail each payroll check, whereas each electronic funds transfer costs 12 cents

She said similar savings would apply to EFT payments to vendors.

Risko estimates that roughly 15,000 state employees are affected by the new act, implying a savings in the neighborhood of $175,000. An earlier Senate fiscal analysis, however, indicated the amount of savings would be "indeterminate."

Risko said the hedge is that savings would be less if employees who don't have Internet access to self-service accounts asked to have their bi-weekly wage statements mailed to them.

In recent years, many U.S. companies and financial institutions have been converting payrolls from checks to direct deposit simply because it's significantly less expensive.

It's estimated that more than 80 percent of companies with 100 employees or more offer direct deposit payroll and that they save from 50 cents to 60 cents per payment by using direct deposit instead of paper checks.    

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