The "direct deposit" method of employee payment allows an employee to have his wages deposited directly into his bank account instead of receiving a paper check. This saves employees a trip to the bank, and can save employers money, as direct deposit is sometimes less expensive than paper payment. However, certain laws must be followed when using direct deposit, and they vary by state.
Mandatory Direct Deposit
Federal law states that employees must be able to choose where their check is deposited. Employers cannot require employees to have direct deposit at a specific financial institution.
Depending on state, an employer may be able to require employees to accept direct deposit. In Texas, if an employee has a bank account, an employer can require direct deposit as long as they give 60 days notice. However, employees who do not have a bank account are not required by law to get one. In Massachusetts, employees with bank accounts can be required to accept direct deposit wage payment as a condition of employment.
According to the Department of Labor, wages must be paid “free and clear,” which means employers can’t charge fees to employees based on method of payment. However, some employers offer both forms of payment, with a charge affiliated with one of them. In this regard, they are following the law while still recovering processing costs.
In many states employers are required to provide a pay stub, even if wages are deposited directly. Nine states do not have that requirement. Those states are Alabama, Mississippi, Arkansas, Ohio, Florida, South Dakota, Georgia, Tennessee and Louisiana.
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