Overview: Direct deposit has become the most popular way to pay wages due to a variety of advantages that make it a much more attractive option than paying wages via cash or check. Many employees have come to expect direct deposit to be a payment option because it is safe and convenient. Employers often prefer it because it may reduce paperwork and costs, and some have now gone a step further and made it a condition of employment.
Employers must comply with both federal and state laws in this area. The applicable federal regulations permit employers to require employees to use direct deposit as a condition of employment so long as the employees are permitted to choose where they want their funds to be deposited. Federal regulations also permit employers to require direct deposit at a certain financial institution only if they give employees the option to be paid by other means.
State direct deposit laws and regulations are generally more protective of employees. When state and federal laws conflict the general rule is that state law must be followed if it is more protective of employees' rights. Thus, multistate employers must check both federal and state regulations before making their direct deposit program mandatory. In most states, the following additional conditions must be met before an employer can pay employees via direct deposit:
Author: Rena Pirsos, JD, Legal Editor
Updated to reflect the forthcoming requirement to compensate employees for certain work schedule changes under the Seattle Secure Scheduling Ordinance.
The New York State Department of Labor has issued final regulations governing the use of paycards and direct deposit to pay employees' wages. Although the law in New York already permits employers to pay employees via these two popular wage payment methods, the final regulations provide many new detailed requirements and restrictions. Employers should act now to be sure their procedures, policies and required forms will be in compliance by the March 7, 2017, effective date.
Updated to include the forthcoming addition of final paycard and direct deposit regulations.
Updated to reflect new paycard law, effective October 1, 2016.
Updated to include the important new requirement to notify employees who have unclaimed wages, effective September 11, 2016.
Updated to reflect the forthcoming Chicago paid sick leave law.
Updated to reflect the payroll implications of the forthcoming Minneapolis Sick and Safe Time Ordinance.
This chart summarizes the requirements under state law with which an employer must comply to pay wages to employees by direct deposit into their checking or savings accounts.
Federal and state laws affecting payment of employee wages by direct deposit.