Paying employees by direct deposit is win/win. It’s what employees prefer and expect: it’s how 93% of employees get paid, according to the 2019 “Getting Paid in America” Survey, saving them the time and hassle of having to personally cash or deposit every paycheck.
Direct deposit also allows organizations to become more efficient without compromising service or security, while eliminating paper checks from your payroll processing saves paper (win for the environment!).
If you’re considering a new automated payroll solution, it’s worth it to invest in one that can accommodate direct deposit services. But before you buy, review these frequently asked questions about the process.
What are the Benefits of Direct Deposit?
- Instant access for employees. As soon as the funds are electronically transferred from a company’s account to the employee’s designated account on payday, the employee can access the funds. No one has to wait for a deposited check to “clear.”
- Reduction in paper usage/waste. According to a survey by the American Payroll Association, nearly 96% of all employees have transitioned to direct deposit, but what about the remaining 4% who prefer a physical check? That’s still a lot of wasted paper. Keep reading to see if your company can require employees to use direct deposit.
- Keeps your information secure. A web-based system allows employees to view their pay stubs securely and on their own time without the fear of losing or misplacing it.
- Establishes consistent pay periods. Using paper paychecks means an employee who is on vacation or out sick on pay day won’t get paid until he or she returns to work, which isn’t ideal. Also, with direct deposit, your organization’s bookkeeping will be current—you won’t have to wait for employees to cash their checks before balancing the books.
Can I Require Employees Use Direct Deposit?
Employers can require employees to use direct deposit, but it depends on your state’s laws. If one of your employee’s doesn’t have a bank account, you can still make a direct deposit through a pay card. In some states, receiving direct deposit can be a condition of employment. However, there are a couple constraints:
- No employer can require an employee to use direct deposit at a specific bank.
- Employers aren’t allowed to charge employees fees based on payment method.
- Employees must have access to their paystubs.
Does Direct Deposit = No More Paper?
Maybe. Again, it depends on your state laws. Federal law doesn’t mandate pay stubs for workers, but the Fair Labor Standards Act does require employers keep accurate records of employees’ wages and hours worked. Employees have the right to request payroll records, even if issuing pay stubs isn’t required by your state.
Printed pay stubs are mandatory if you work in one of these 11 states:
- Hawaii (employees must opt in)
- New Mexico
- North Carolina
Some states don’t require employers to provide pay stubs at all. You may have to request your wage information if you work in one of these 10 states:
- South Dakota
Employees can opt out of an employer’s direct deposit program in the following states:
These states require their employers provide access to a pay stub, but don’t specify if it needs to be written/printed or if an electronic version will suffice:
- New Hampshire
- New Jersey
- New York
- North Dakota
- Rhode Island
- South Carolina
- West Virginia
If an employer decides not to offer printed pay stubs, they need to make sure:
- Employees can access the pay stub electronically
- Employees have a unique, secure login
- The pay stubs can be printed by the employee if desired
The information found on a pay stub varies depending on what each state requires.
How Can a Payroll Service Help with Direct Deposit?
Time is money, and you don’t want to waste time (especially as a medium or small business owner) running payroll and managing payroll taxes. A payroll service can handle those tasks for you. It should also be able to help you produce pay stubs compliant with local regulations, wherever you are in the country.)
Cloud-based payroll software makes the information available anywhere and from any device. The direct deposit process should be seamless with a top-notch customer support team that’s a phone call away should any questions arise. For more information on how Paycor can help with your payroll and direct deposit, contact our sales team.
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