This is an interesting question – Can I require my employees to enroll in direct deposit? In some states, yes. However, it depends on the State that which you employ your staff.
For instance, some states allow employers to mandate electronic payment of wages. However, what you can never do is to force your employee to use a particular financial institution for that deposit. Some states allow employees to opt-out. Some states allow employees to opt-in.
The following article from Chron.com on payroll direct deposit laws gives some detailed information that we’ve included here. Go to their website for the full article.
Before an employer can use EFT for payroll payments there are several things he must do. These are enumerated in the Controller’s Handbook of the Electronic Funds Transfer Act. The Act’s most important features relating to direct deposit of payrolls are:
- The Act requires the employer to give each employee a summary of the rights and liabilities of direct deposit payroll payments.
- The employer also needs the employee’s signature on an authorization statement, the name and routing number of the bank, the account type and the employee’s bank account number.
- Employers may require employees to accept direct payroll deposits, provided that employees are allowed to designate the institution receiving the deposit.
An Overview of State Requirements
Payroll Direct Deposit (PDD) laws vary from state to state, and they fall into one of the following groups. Some of these requirements, however, duplicate federal law; others add further restrictions. Note, however, that the lists below only provide an overview at the time of publication. Some states add conditions that apply only in certain circumstances. Other states allow certain exceptions.
Eight States Have No PDD Laws
These states add no further requirements to federal law:
There are Nine States Allow Employers to Require Employees to Enroll in Direct Deposit
With a few additional state restrictions, these states allow employers to require employees to accept payroll direct deposits so long as the conditions are consistent with federal law:
- South Carolina
- West Virginia
There are Twenty-one States Require Employee Consent to Enroll in Direct Deposit
These states all require the employee’s agreement before an employer can direct deposit payrolls. Some states require agreement in writing before enrolling in direct deposit; some do not:
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Rhode Island
There are Three-State Outliers that Do Not Fit into Any of the Above Categories
Three states have laws that do not fit neatly into any of the previous categories. For instance, Arizona requires the employee to specify the bank receiving direct deposits, consistent with federal law. Or, alternatively, to agree to receive payments in “electronic pay card form,” which is essentially a fund-loaded debit card.
Arkansas allows employees to opt-out of direct deposit with a written statement.
Utah’s laws are the most unusual. They allow employers to require direct deposit only if they pay at least $250,000 in payroll taxes to the state. Alternatively, if at least two-thirds of company employees agree to accept payroll direct deposits.
Go to Chron.com for their full article.
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Charles Read, CPA, USTCP, IRSAC
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