New Iowa Law on Direct Deposits

Governor Culver has signed into law House File 367, a bill intended to hold employers responsible for overdraft charges on employee’s bank accounts, if the employer fails to direct-deposit employee funds in a timely manner.  Under prior law, there was no recourse for employees should an employer fail to deposit funds. The new law allows overdraft charges incurred on account of an employer’s failure to timely deposit funds to be the basis for a wage claim under Iowa Code §91A.10.  Also, damages may be recoverable under §91A.8, and  if the employer fails to credit the employee’s account in timely manner, they may also be liable to pay the employee’s attorney’s fees.

For employers in rural areas, this is an especially important development.  Some employers may not adhere strictly to a set payment schedule. This new legislation forces the banks and employers to ensure employee funds are in the account on the day promised. Although a bank is not off the hook for their own mistakes in the process, this new legislation forces employers to make timely deposits of employee pay to their local banks. If an employee files a wage claim and the employer is found to be liable for attorney’s fees and damages, litigation may ensue between the employer and their respective financial institution, creating problems in business relationships. Banks and employers working with them will need to develop procedures to ensure that mistakes in the direct deposit process don’t happen.

If the failure to deposit by the employer is unintentional, liability is only for the amount not deposited and expenses incurred, such as attorney’s fees and overdraft charges.  These damages must be “usual and necessary” for the employee.  Additional damages can be recovered for an employer’s intentional failure to deposit the funds, but that could be difficult for an employee to prove.

The legislation also addresses the effect filing such a claim against an employer may have on the employee’s work environment or employment status.  In an attempt to avoid this problem, House File 367 includes a prohibition against the discharge of an employee based upon their written complaint of this nature.  These wage claims are handled in a court of “competent jurisdiction” by a state-appointed commissioner.  The commissioner may work with the attorney general’s office to investigate the situation and issue a ruling within fourteen days of the receipt of the complaint.  Thus, the legislation aims to address these issues within a reasonable amount of time to ensure employee’s are compensated correctly.  H.F. 367, amending Iowa Code §§ 91A.8, 91A.10 (2007).