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Employers May Now Require Electronic Payroll

January 24, 2011

Switching to an electronic payment program can save costs, but until recently Michigan employers could do so only with employee "consent." Last month the Michigan Legislature changed the law so that employers can now require employees to accept their paychecks by means of an electronic payment system. To take advantage of the new law, however, employers must satisfy certain conditions.

The primary condition is that the employer must offer employees an "option" as between "direct deposit" and "payroll debit." An employer cannot require direct deposit, for example, if that is the only electronic option. In that situation the employer would still need employee "consent."

Other requirements for a mandatory electronic payment program include:

  • a written form for the employee to elect whether to receive wages by direct deposit or by payroll debit card; and
  • written disclosure of charges and terms of use of a payroll debit card.

If an employee does not return the election form within 30 days, the presumption is that the employee has elected to receive wages by payroll debit card. If an employee is currently paid by direct deposit, however, that method cannot be changed without the employee's consent. An employee must not be required to pay any cost that the employer may incur in paying wages or establishing an electronic payment system.

With respect to mandatory payroll debit cards, the law also requires the following:

  • the card must be issued by a federally insured financial institution;
  • the card must provide the employee with immediate access to withdraw or transfer wages through a network of ATMs;
  • the card must 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; and
  • the card must allow the employee to make an unlimited number of balance inquires, without charge.

The terms of the card cannot be changed without 21 days written notice to the employee, and the card cannot be linked to any form of credit, including cash advances or loans against future pay.

Because an electronic payment system can be an important money saver, employers should consider making the switch, but must be wary of the statutory requirements. Employers operating in more than one state must also consider the law in each of those states. For further information or advice on this topic, please feel free to contact any of the Varnum employment lawyers.

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