Q. Can California employers use direct deposit to pay wages on discharge or termination?

A. While the answer is supposed to be “yes” starting next year, the real world answer is not so clear.

On September 8, 2005, Governor Schwarzenegger signed Assembly Bill No. 1093, amending Labor Code section 213 to make it easier for employers to pay final wages to employees on discharge or termination. AB 1093 takes effect on January 1, 2006.

Labor Code section 213 permits an employer to use direct deposit if the employee authorizes it. However, Section 213 currently provides that if an employee is discharged or quits, the employee’s authorization is terminated so that the final paycheck cannot be paid by direct deposit.

Effective January 1, 2006, Section 213 will provide that “if an employer discharges an employee, or the employee quits, the employer may pay the wages earned and unpaid at the time the employee is discharged or quits by making a deposit authorized pursuant to this subdivision, provided that the employer complies with the provisions of this article relating to the payment of wages upon termination or quitting of employment.”

That last phrase is what creates problems. The Labor Code requires an employer to pay final wages to a terminated employee on the employee’s last day, and within 72 hours to employees quitting without notice. Many banks do not credit an employee’s account within that time frame – meaning that many employers will not be able to take advantage of the new law.