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The Question of Mandatory Direct Deposit
July 2010

By:  Nancy E. Joerg, Esq.

Many employers call our law firm to see if they can force their employees to use direct deposit. The answer for many states is "No." State laws rule in this area. Interestingly, some states, such as Missouri and Ohio, have no direct deposit laws.

Illinois: The Illinois Wage Payment and Collection Act requires employers to pay each of its employees his/her wages in a form that the employee may readily convert into cash (without the need of a personal bank account), unless an employee freely volunteers to be paid by direct deposit into an account with a financial institution of his/her choice.

This means that an Illinois employer cannot force (by means of company policy) employees to accept "direct deposit" as a method of payment. An employer cannot designate a particular financial institution or currency exchange for the exclusive payment or deposit of a check for wages.

Iowa: An Iowa employer may require a new employee to sign up for direct deposit (to the employee's designated financial institution) as a condition of hire unless the employee's costs of establishing and maintaining that account would reduce wages below the minimum wage; the employee would incur account fees as a result of direct deposit; or the parties are subject to a collective bargaining agreement prohibiting a direct deposit requirement as a condition of hire.

Minnesota: Private sector employers in Minnesota can enroll employees in direct deposit; however, employees may opt out by written notification to the employer. Therefore, mandatory direct deposit is not permissible in Minnesota.

Wisconsin: Wisconsin does not have a law that deals with direct deposit. The Wisconsin Department of Workforce Development (DWD) uses interpretation and inferences from Wisconsin wage and hour laws. The DWD says on its website that a direct deposit system must utilize a Wisconsin facility unless the employee voluntarily chooses a facility that is located outside of the state. This same DWD website states that a mandatory direct deposit system must provide a worker with 100% of his or her wages without the worker incurring any cost to gain access to their pay (check fees, service charges on an account, etc.).

The DWD website further notes that if an employer chooses to institute a direct deposit pay system that is available at the option of the employee, it is immaterial whether or not there are fees associated with obtaining the wages. If the employee chooses to use the direct deposit system, it is assumed that the employee has agreed to pay these fees for the convenience and security of having the wages placed directly into his or her bank account.

Because this direct deposit issue is not addressed in the statutes, a Wisconsin employer may make employee participation in a direct deposit pay program a condition of employment. That is, a Wisconsin employer may require that all new hires agree to participate in a direct deposit system, and be responsible for any fees, as a condition of employment. A Wisconsin employer may also require that established employees participate in a direct deposit system as a condition of continued employment. If a direct deposit is to be made, the employee must still receive a check stub showing the rate of pay, hours worked and the amount of and reason for each deduction.

Because each state sets its own laws regarding direct deposit of employee paychecks, each state has its own approach to related subjects such as "account fees," "opting out," "choosing the financial institution," etc. Contact any Wessels Sherman attorney to discuss questions regarding this subject.