Effective December 21, 2010, the Michigan Wages and Fringe Benefits Act (MWFBA) was amended permitting Michigan employers to require their Michigan-based employees be paid via direct deposit or via a payroll debit card. Previously, employers had to issue paper checks if the employee did not give his or her “full, free and written” consent to direct deposit. Likewise, unless payroll debit cards were in place prior to January 1, 2005, “full, free and written” consent also was required for use of payroll debit cards. Currently, most other states do not allow employers to require the use of direct deposit or payroll debit cards.
According to the Michigan Senate’s analysis, electronic payroll systems are up to 85 percent less expensive for employers to administer than paper payroll systems. Employers may realize savings by avoiding the cost to print and handle paper checks, reconcile paper checks, replace lost or stolen paper checks, and avoid costs incurred resolving increasingly alleged holder in due course claims that arise from lost or stolen paper checks.
In order to require one of the electronic forms of pay, the employer must provide the employee with all of the following:
- A written form that allows the employee the option to receive wages either by direct deposit or through a payroll debit card.
- A statement informing the employee that unless they are already being paid via direct deposit or payroll debit card, failure to return the form within 30 days with the account information necessary to implement direct deposit, the employee will be presumed to consent to receiving wages through a payroll debit card.
- If the employee is currently paid by direct deposit, the method of pay will not be changed to payroll debit card without written consent.
- Written disclosure of all of the following concerning the payroll debit card: (a) the terms and conditions for use, including an itemized list of any and all fees; (b) the methods for accessing wages without charge; (c) a statement that if the payroll debit card is used outside of the specific network of automated teller machines, both the payroll card issuer and the operator of the automatic teller machine may impose charges; (d) the methods to obtain free balance inquiries; and (e) the employee’s right to elect to change the method of receiving wages at any time.
For payroll debit cards, the terms of the agreement between the financial institution and the employer also should be scrutinized to ensure it complies with Michigan law. For instance, financial institutions may offer payroll debit card systems to employers free of charge based upon the idea that the financial institution will cover costs and realize a profit from a myriad of charges imposed on employees for certain events (such as overdrafts or multiple withdrawals per pay period). However, these charges are limited by the MWFBA, which requires that employees be able to make at least one withdrawal or transfer without charge each pay period and free of charge telephonic or electronic balance inquiries. Additionally, agreements that link the size of the employer fee to the amount of employee-incurred fees the financial institution collects should be carefully considered as such an arrangement may run afoul of the restriction that an employer may not seek to transfer to the employee any fees or costs incurred by the employer in connection with paying wages or establishing a process for paying wages via direct deposit or payroll debit card.
A link to Public Act 323 which amended the MWFBA can be found here.