Is there ever an instance where a direct deposit cannot be reversed?

Author: Ryan F. Donovan

Yes. The national NACHA (The Electronic Payments Association) guidelines say that an employer is permitted to reverse a direct deposit within five business days. Assuming that no applicable state laws override that, this is the guideline the employer must follow. Once five business days pass, the employer is no longer allowed to reverse the direct deposit. If the employee is in a state where direct deposit reversals are restricted, such as California, the employee must either sign off on the reversal or the employee has to pay back the employer manually.

If the employee refuses to pay back the money, the employer should avoid simply withholding it from a future check (if any) without the employee's signed authorization. Doing otherwise is illegal in some states. If an employee refuses to pay and no legal opportunity exists to retrieve the funds, the employer's only real options are to go to court or just take the loss. Note that if the employee keeps the wages, the wages should be reported on the W-2 so that what the W-2 says and what the employee actually received is in congruence.