October 29, 2018 Read time: 6 mins

Can Employers Make Direct Deposit Mandatory?

People Management|Compliance

Ninety-six percent of U.S. employees receive their paycheck via direct deposit, according to an American Payroll Association survey. But what about the remaining 4% who prefer a physical check? Can you make direct deposit mandatory for your employees? Yes… and no. Like most things in HR, it all depends on the employment law in your state and the classification of employees.

Mandatory Direct Deposit By State

State	Can You Make It Mandatory	Covered employers
Alabama	Private Sector: Yes Public Sector: No	All employers
Alaska	No	All employers
Arizona	Yes	All employers
Arkansas	No	Private and state-government employers
California	No	All employers
Colorado	No	Private employers
Connecticut	No	All employers
Delaware	No	Private employers
District of Columbia	No	Private Employers and Local Governments
Florida	No	All employers
Georgia	No	All employers except those in the farming, sawmill, and turpentine industries
Hawaii	No	All employers
Idaho	No	All employers
Illinois	No	All private employers and local governments, but not state and federal governments
Indiana	Yes	All employers
Iowa	Yes: Employers may not require employees hired before July 1, 2005, to participate in direct deposit. Employers may require a new employee to sign up for a direct deposit as a condition if hire unless the cost to the employee of establishing and maintain an account would effectively reduce the employee’s wages to a level below the minimum wage.	All employers
Kansas	No	All employers
Kentucky	Yes	All employers
Louisiana	Yes	Public sector, State government
Maine	Yes	All employers
Maryland	No	All employers under various statutes
Massachusetts	Yes	All employers
Michigan	Yes	All employers
Minnesota	Private sector: No Public sector: The Commissioner of Labor & Industry may require direct deposit for all state employees	All employers under various statutes
Mississippi	No regulations regarding direct deposit	All employers
Missouri	No regulations regarding direct deposit	All employers
Montana	No	All employers
Nebraska	No regulations regarding direct deposit	All employers
Nevada	No	All employers
New Hampshire	No	All employers
New Jersey	No	All employers
New Mexico	No	All employers except employers of domestic labor in private homes and employers of livestock and agricultural labor
New York	No	All employers
North Carolina	Yes	All employers
North Dakota	Yes	All employers
Ohio	No regulations regarding direct deposit	All employers
Oklahoma	Private sector: Yes State government: Yes	All employers under different circumstances
Oregon	No	All employers
Pennsylvania	No regulations regarding mandatory direct deposit	All employers
Rhode Island	No	All employers
South Carolina	No	All employers
South Dakota	Yes	All employers
Tennessee	Yes	Private employers with at least 5 employees
Texas	Yes	All employers
Utah	Yes	Private employers except those involved in farm, dairy, agricultural, viticulturally, or horticultural pursuits; stock or poultry raising; household domestic service; or other employment in which a written agreement provides different terms s
Vermont	No	All employers
Virginia	No	All employers
Washington	Yes	All employers
West Virginia	State institutions of higher education: Yes Employers subject to the WPCA: No
Wisconson	Yes	All employers
Wyoming	No	All employers

Direct Deposit Laws

Depending on state laws, employers can require their employees to receive payments via direct deposit. In some states, receiving direct deposits can even be included as a condition of employment. However, even these states have some restrictions you need to know.

They include:

No employer can require an employee to use direct deposit at a specific bank.
Employers aren’t allowed to charge employees a fee based on payment method.
Employees must have access to their pay stubs.

*If an employee doesn’t have a bank account, direct deposit payments can still be made via a paycard.

If you provide direct deposit to your employees, you may also be required to provide them with a pay stub if it’s required in your state. Federal law does not mandate pay stubs for workers, but the Fair Labor Standards Act requires employers to keep accurate records of employees’ wages and hours worked. Your state might not require employer-issued pay stubs, but an employee has the right to request payroll records.

For instance, printed pay stubs are mandatory in Arizona, Colorado, Connecticut, Hawaii, Iowa, Maine, Minnesota, New Mexico, North Carolina, Texas and Vermont. However, most of these states now allow employers to use electronic pay stubs as long as three standards are met:

Employees can access their pay stubs electronically
Employees have a unique, secure login
The pay stubs can be printed out

Several states do not require you to provide pay stubs all: Arkansas, Florida, Louisiana, Mississippi, Nebraska, South Dakota, Tennessee and Virginia. The remaining states require some type of pay stub, whether in print or available electronically, such as via an Employee Mobile app.

Why You Should Use Direct Deposit

Besides having benefits for both employers and employees, direct deposit is fast, simple and accurate. Pay discrepancies are easily resolved without checks getting lost in the mail or stolen. There are countless advantages over paychecks, here are just a few:

Benefits for the Employer:

Cost saving: No need to pay for checks, ink or printer maintenance
You can process payroll and pay employees no matter where you are located
Paperless payroll is considered eco friendly
Employee information is more secured

Benefits for the Employees:

Checks don’t get lost or damaged
Correcting payments is faster
Employees no longer need to make a trip to the bank
Instant access to funds
Receive their payment regardless of where they are
Employees can easily divide their paycheck among multiple accounts, which can help boost employee savings and overall morale.

When employees have easy access to funds and paystubs, they can spend less time on banking and more time impacting your organizations bottom line.

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