Can We Mandate Direct Deposit? [Wage & Hour FAQ]

Posted by Bill Pokorny on October 12, 2012

Direct Deposit Slip iStock_000017654852XSmall.jpgQ. We would like to require employees to accept pay via direct deposit. Is this permitted?

A. Direct deposit is an increasingly common method of paying employees, with numerous advantages for employees (fewer trips to the bank, no worry about losing a check) and employers (reduced cost and administrative hassle).

The Fair Labor Standards Act does not directly answer this question. However, in its interpretive regulations, the U.S. Department of Labor states that the FLSA requires payment "in cash or negotiable instrument payable at par," except under limited circumstances in which employers are permitted to record a credit for board, lodging, and other facilities. 29 CFR § 531.27. That of course begs the question of whether direct deposit into a bank account qualifies as a "cash equivalent." The regulations do not address that question, but in Section 30c00(b) of its Field Operations Handbook, the DOL says the following:

The payment of wages through direct deposit into an employee's bank account is an acceptable method of payment, provided employees have the option of receiving payment by cash or check directly from the employer. As an alternative, the employer may make arrangements for employees to cash a check drawn against the employer's payroll deposit account, if it is at a place convenient to their employment and without charge to them. [Emphasis added.]

So, at least according to the U.S. Department of Labor, employers can pay employees via direct deposit, but have to allow employees the option of receiving payment by cash or check. (Note - we strongly recommend against paying employees in cash.) 

Most states also have laws that govern when and how employers must pay employees. 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. The Society of Human Resources Management has a useful compilation of state laws on wage payments and direct deposit available here. 

 

Another Celebrity Chef Runs Afoul of Tip Pooling Rules

Posted by Staci Ketay Rotman on September 20, 2012

chef_grahamelliot.bmpShortly after my co-author, Bill Pokorny, wrote about celebrity and Iron Chef Mario Batali’s multi-million dollar settlement of a class action tip pooling lawsuit, another celebrity chef here in Chicago was sued for violating tip pooling laws.  In March 2012, a lawsuit was filed against Master Chef Graham Elliot by 14 former employees over tip pooling requirements at his self-titled restaurant.

Gregory Curtis, a former waiter at Graham Elliot, claimed that he and others were forced to participate in a tip pool that included bartenders, bussers, food runners and cooks.  Under federal law, employees may be required to participate in a tip pool only if the tips are distributed among employees who “customarily and regularly receive tips,” and this generally is limited to personnel such as servers, bussers and service bartenders.  Curtis alleged that food runners and cooks do not customarily and regularly receive tips and so they may not participate in a tip pool.  Due to the inclusion of such “back of the house” employees in the tip pool, Curtis claimed he was entitled to lost wages.  For a good summary of tip pooling rules, see Bill’s prior blog post. 

After litigating this case for over a year, this week, Graham Elliot reached an undisclosed settlement with Curtis and the other waiters.  If the allegations are true, Graham Elliot’s tip pool did not appear to meet the requirements of federal law. 

While tip pooling is generally limited to the hospitality industry, this is another example of a celebrity experiencing some difficulty navigating wage and hour laws.  Employers can feel better knowing that not even the rich and famous are exempt from compliance with the FLSA and related state laws.  Even the most brilliant chefs must ensure that their businesses comply with wage and hour laws.  More than ever, employees are aware of their rights, particularly as it relates to wages.  While I truly enjoy the brilliance of these celebrity chefs and the meals they create (Bobby Flay is a favorite!), the regulatory side to running a restaurant cannot take a back seat.    

The lesson learned here is this - whether you are a celebrity chef or a more run-of-the mill type of business, all employers must comply with applicable federal and state wage and hour laws.  Given the complexities of wage and hour laws, employers should seek the advice of employment counsel for effective ways to comply with those laws.