Can Employers Make Direct Deposit Mandatory?
Can Employers Make Direct Deposit Mandatory?

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

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  
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  
 
Wisconsin  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:

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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