Ninety-three percent of U.S. employee are paid by direct deposit, according to the American Payroll Association’s “Getting Paid in America” Survey. It’s by far the most popular payment method, but that doesn’t mean there aren’t employees who’d prefer to receive a traditional printed paycheck.
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.
To help businesses, we’ve prepared this table so you can easily track the mandatory direct deposit laws wherever you are.
Mandatory Direct Deposit By State
|State||Can You Make It Mandatory||Covered employers|
|Alabama||Private Sector: Yes Public Sector: No||All employers|
|Arkansas||No||Private and state-government employers|
|District of Columbia||No||Private Employers and Local Governments|
|Georgia||No||All employers except those in the farming, sawmill, and turpentine industries|
|Illinois||No||All private employers and local governments, but not state and federal governments|
|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|
|Louisiana||Yes||Public sector, State government|
|Maryland||No||All employers under various statutes|
|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|
|Nebraska||No regulations regarding direct deposit||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|
|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|
|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|
|West Virginia||State institutions of higher education: Yes
Employers subject to the WPCA: No
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.
- 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.
Paycor is not a legal, tax, benefit, accounting or investment advisor. All communication from Paycor should be confirmed by your company’s legal, tax, benefit, accounting or investment advisor before making any decisions.
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