New law Employers can nix paper paychecks

February 6, 2011
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On Dec. 21, 2010, Michigan enacted a new law that allows employers to mandate electronic payment of wages. Michigan law had previously required an employer to obtain the “full, free and written” consent of the employee in order to pay by direct deposit or debit card. Under the new law, the consent of the employee is no longer required. The new law is effective immediately.

The statute requires the employer to give employees specific information before implementing electronic payment. It also allows employees to choose between direct deposit and debit card, and imposes several protective requirements on payroll debit cards.

In order to require an employee to receive wages electronically, the employer must provide the employee with the following:

  • A written form for the employee to elect whether to receive wages by direct deposit or by payroll debit card.

  • Written notice that the employee must return the election form within 30 days in order to elect direct deposit. If the employee does not return the form in 30 days, the employer will presume that the employee has elected to receive wages by payroll debit card. If the employee is currently paid by direct deposit, that method of payment will not be changed without the written consent of the employee.

  • Written disclosure of the charges and terms of use for the payroll debit card.

  • An employee must not be required to pay any costs that the employer may incur in paying wages or establishing an electronic payment system.

Any payroll debit card required by an employer must:

  • Be issued by a federally insured financial institution.

  • Provide the employee with immediate access to withdraw or transfer wages through a network of ATMs.

  • Allow the employee to make at least one withdrawal or transfer each pay period, without charge, for any amount up to the balance on the card.

  • Allow the employee to make an unlimited number of balance inquiries, without charge.

  • Require 21 days written notice to the employee of any change in terms.

  • Not be linked to any form of credit, including cash advances or loans against future pay.

Any employer considering a payroll debit card system needs to make sure the financial institution’s debit card program complies with the Michigan law. Also, because wage payment laws differ from state to state, a multi-state employer will need to consult the laws of the other states in which it has employees.

Electronic payroll processing can be more efficient and less costly than issuing paper paychecks. One estimate is that employers save as much as 85 percent of their processing costs by switching to electronic methods of wage payment. But savings are severely diminished if some employees refuse to accept electronic payment. 

The new law allows employers to take advantage of those savings, by removing the employee’s right to withhold consent, while providing employees with substantial protections against cost, risk and inconvenience in accessing their wages. Michigan has now joined a growing number of states with legislation allowing employers to implement electronic payment for all employees.

Bill Fallon is a labor and employment attorney in Miller Johnson’s Grand Rapids office.  He is also the chair of the firm’s wage and hour practice group.

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