Can Employers Make Direct Deposit Mandatory?

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

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.