Effective July 1, 2005, Iowa employers can require new employees to sign up for direct deposit of their wages as a condition of hire. The new law, which amends the Iowa Wage Payment Collection Act, Section 91A.3(3) and 91A.6 of the Iowa Code, also requires employers to give employees certain wage, hour and deduction information every pay period. A key twist to the new law is that "current employees" are exempted from being required to receive their pay via direct deposit, so once a "new hire" starts working, he/she becomes a "current employee" and can then choose to opt out of direct deposit.

Key components of the revised wage laws are as follows:

1. Allows employers to require, as a condition of hire, that a new hire sign up for direct deposit of his/her wages.  The direct deposit must be made to a financial institution selected by the new hire.

2. The employer may not require direct deposit for new hires if any of these conditions exists: (a) the costs to the new employee of setting up and maintaining an account would reduce the employee's wages below minimum wage; (b) the employee would incur a fee charged to the employee's account as a result of the direct deposit; and/or (c) a labor union contract between the employer and a labor union representing the employees prohibits the employer from requiring employees to sign up for direct deposit of wages.

3. IMPORTANT NOTE - Current employees still have a choice.  The new law only allows employers to require direct deposit for new hires. Employers may not require current or existing employees to participate in direct deposit. Direct deposit to a financial institution of their choice remains voluntary for current or existing employees. Thus, once a "new hire" starts working, or a current employee who has signed up for direct deposit changes his/her mind, he/she can stop direct deposit and ask for a regular paper paycheck. However, the law does not require employers to inform new hires that they can later opt out of direct deposit.

4. New Pay Stub Requirement: The new law also requires that every regular payday, the employer provide to the employee (by mail or at the employee's normal place of work during normal employment hours) a statement showing: (a) the number of hours the employee worked; (b) the wages earned by the employee; and (c) the deductions made from that paycheck. It is acceptable for an employer to provide each employee access to view an electronic statement of the employee's earnings, so long as the employee has free and unrestricted access to a printer to print the statement, if the employee chooses. This is a new requirement for employers.

Question: What are the changes in Iowa law relating to direct deposit and pay stubs?

Answer: The new law that took effect July 1, 2005, allows employers to require that as a condition of hire, new employees participate in direct deposit of the employees' wages into a financial institution of the employee's choice. The new law also requires that every payday, the employer provide a statement showing the number of hours worked, wages earned, and deductions made from the employee's paycheck.

Question: When is an employee considered a "new hire" covered by this law?

Answer: An individual hired by a company who starts to work on or after July 1, 2005, is considered a "new hire" who may then be required, as a condition of hire, to sign up for direct deposit.

Question: Does the "new hire" still have to sign an authorization form indicating they are signing up for direct deposit?

Answer: Yes. Iowa's wage payment law still requires that an employee agree in writing to have his or her wages paid via direct deposit.

Question: Does the new law allow for payment of wages via "debit cards"?

Answer: No. The new law does not allow for payment of wages via a "debit card."

Question: Can an employee opt out of direct deposit?

Answer: Yes. The new law specifically provides that an employer may not require that a "current employee" participate in a direct deposit program. Anytime a current employee wants to withdraw from direct deposit, he or she must be allowed to do so. Thus, once a "new hire" starts working or a current employee who has signed up for direct deposit wants out of the program, the employer must allow the employee to withdraw from direct deposit and be given a regular written paycheck.

Question: Does the new pay stub law require that the employer put on the employee pay stub the hours worked, wages earned, and deductions made during the relevant pay period and year-to-date?

Answer: The new law requires that every payday, the employer provide a statement showing the hours worked, wages earned, and deductions made from the employee's paycheck. There is no requirement in the new law that this regular pay stub contain "year-to-date" information. This new law does not change other recordkeeping requirements employers may have under either state law or the federal Fair Labor Standards Act.

Question: Are there penalties an employer may face if it violates this law by forcing direct deposit on current employees, or by failing to give an employee the required pay stub information?

Answer: Yes. Under Iowa Code Chapter 91A.12, an employer faces civil penalties of $100 for each violation of the law.

Question: If I have a question about this new wage law, who can I call for additional information?

Answer: You may call the Iowa Division of Labor within Iowa Workforce Development at (515) 242-5870. If you are having difficulty getting through, call the Iowa Workforce Development Customer Service Desk at 281-5387, or 1-800-562-4692, and they will route your call to the appropriate person.