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In addition, federal regulations govern direct deposit of salaries and other employee payments.Employers cannot require their employees to use any particular financial institution for receiving direct deposit of wages or bonuses.Now, although employers still may not mandate direct deposit for all employees, they can require their employees to accept either direct deposit or to receive their pay on a payroll debit card if certain notices and protections are provided.In order to mandate direct deposit or a payroll debit card, employers must provide employees with all of the following: Employees may not be required to pay any fees or costs incurred by the employer in establishing direct deposit or payroll debit cards.A small business cannot legally try to save money on bank direct deposit fees by having its employees open direct deposit accounts at the bank where the business holds its own accounts.The FDIC has clarified that this does not prevent an employer from requiring direct deposit as long as the employee chooses the receiving bank: "An employer may require direct deposit of salary by electronic means if employees are allowed to choose the institution that will receive the direct deposit.Alternatively, an employer may give employees the choice of having their salary deposited at a particular institution (designated by the employer) or receiving their salary by another means, such as by check or cash." Alabama, Georgia, Hawaii, Louisiana, Massachusetts, Mississippi, Nebraska and Ohio have no clear laws restricting direct deposit in any way.
While a handful of states permit employers to mandate direct deposit (usually with some restrictions), most, like Illinois, allow direct deposit only with the agreement of the employee.
An employer can also require that its employees use a particular financial institution so long as that institution is insured by the United States government.
However, from an employee relations perspective, it would be best to allow your employees to use their own financial institution if you are going to require that they be paid by direct deposit.
Should you have any questions about these recent changes to the Michigan wage payment act or how to implement them, or should you have questions about any other labor or employment-related matter, please contact any member of Warner Norcross & Judd LLP’s Labor & Employment Practice Group.
Direct deposit, where employers pay employees by transferring money directly to employees' bank accounts, is very convenient for small business owners, who save check printing costs and bank check processing fees.