Mandatory Direct Deposit By State [2023]

Even in the states where employers can implement mandatory direct deposit laws, there are some restrictions and requirements they need to follow. These include:

• Employers cannot require employers to use a specific bank for direct deposit.
• Employers cannot charge employees an extra fee based on the payment method.
• Employees must have access to their pay stubs.
• If an employee doesn’t have a bank account, direct deposit payments must be made with a paycard.

Pay stubs are an important part of ensuring employees have information about their direct deposit. While federal law does not mandate pay stubs for workers, many states do require pay stubs to be provided to employees. Even in the states that don’t, employees have the right to request payroll records.

In total, there are 11 states that require mandatory printed pay stubs, including Arizona, Colorado, Connecticut, Hawaii, Iowa, Maine, Minnesota, New Mexico, North Carolina, Texas and Vermont. On the other hand, eight states don’t require pay stubs; Arkansas, Florida, Louisiana, Mississippi, Nebraska, South Dakota, Tennessee and Virginia.

Other states allow electronic pay stubs, and these are the three requirements that must be met:

• Easy electronic access
• Employees must have a unique, secure login
• The pay stubs can be printed out

Direct Deposit Employer Benefits

Paying employees via direct deposit has many benefits for employers. These include:

• Cost savings. Employers who choose to pay with direct deposit don’t need to pay for checks and can save a lot of money on printer supplies.
• Reduced fraud and theft risk. When employees are given direct deposits, there’s reassurance that the money is safe, as a check could be stolen by someone else, as well as fabricated or altered.
• Secure information. Employee information is secured with passwords and other safety measures, further reducing the risk of theft.
• Greater control. Direct deposit provides employers with more control over payroll and payroll expenses.
• Timely payments. Payments can be made more quickly and provided even when employees are away on payday.
• Reduced bookkeeping. Payments are easier to track and record as they process immediately.
• Better access. Even if they’re away, employers can process payroll and pay employees.
• Eco-friendly. The lack of paper and printing required for direct deposit makes it a more eco-friendly option for employers.

Direct Deposit Employee Benefits

Unlike other aspects of the employer-employee relationship, direct deposit benefits both parties. On the employee side, here are some of the top benefits that come with being paid via direct deposit:

• Paycheck cannot be lost or damaged. Checks can easily be dropped on the sidewalk or tossed in and ruined with the laundry. Being paid through direct deposit prevents these incidents from occurring.
• Can correct payments quickly. If an employee notices that their pay is incorrect, they can easily contact their employer and fix the issue.
• Paid from home. Employees don’t need to make a trip to the bank to cash or deposit a check, and instead can be paid from the comfort of their homes.
• Instant access. Employees can use their paycheck as soon as they receive it instead of having to take extra steps or wait several days for the money to transfer.
• Get paid anywhere. Employees can receive their direct deposit anywhere, anytime.
• Easy saving. Payments can easily be transferred between accounts, making it easier for employees to save money.

Mandatory Direct Deposit FAQ

1. Why do some jobs not make a direct deposit?Some jobs don’t make a direct deposit because employers prefer physical wages or because employees choose to receive physical wages. In many cases, this might be because the employer or employee doesn’t have a bank account, making it impossible to process a direct deposit. This is especially true for small employers with only a few employees, employers in rural areas, or older and younger employers who don’t have a bank account.
2. How much does it cost an employer to make a direct deposit?Direct deposit typically costs between $1.50 and $1.90 in transaction fees for each individual deposit. While setting up direct deposit can cost as much as $50 to $149 in set-up fees, this is still less than the cost of physical wages over time. For example, the average office printer costs $900–$3,000, and the average cost of printing and issuing checks is about $6 per check. With that in mind, direct deposit is usually far more cost-effective.

Conclusion

Direct deposit is common practice in the US, but it is important to know which states allow employers to make it mandatory. In total, there are 20 states that allow employers to have mandatory direct deposit and five states where there are no direct deposit regulations.

And there’s a reason why states allow this practice, as direct deposit provides many benefits for employers and employees. From increased security to better access, direct deposit is one of the few pay-related policies that benefit employers and employees at the same time.

Overall, when starting a business, it’s important to ensure that you understand the laws of your state, as well as the desires of your employees.

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