Direct
deposit allows employers to electronically transfer employees' net pay into
their bank accounts. This eliminates the need for employees to receive a paper
check and can help employers save money. If you haven’t already implemented
direct deposit, you may have asked whether you can require employees to enroll in direct deposit? This week’s Tip
answers this, and other common questions about direct deposit.
Q: What are
the advantages of direct deposit for employers?
A:
There are a number of potential advantages for
employers, such as:
- More time. The time and money spent
on printing, mailing, reconciling, and reissuing paper paychecks can add
up. Going paperless eliminates the need to hand out paper checks or wait
for payroll delivery.
- Easier payment of final wages. When
employees leave the company, providing their final wages via direct
deposit can be easier than providing a paper paycheck. This is especially
true for employees who quit without notice, or who work in states that
require final pay immediately upon separation. Setting up direct deposit
for an employee's final wages tends to be easier than arranging for the
employee to pick up his/her final paycheck or mailing it.
- Improved productivity. If employees are using
their lunch or rest breaks to cash their paycheck, they may be late
returning to work and/or may not be getting the full benefit of their
meal or rest period.
Q: What are
the advantages of direct deposit for employees?
A:
Consider explaining the benefits of direct deposit
to your employees, including how it:
- Eliminates the need to go to the bank to deposit their paycheck.
- Typically provides access to deposited funds faster and on a more
predictable schedule.
- Allows employees to conveniently distribute their paycheck into
multiple accounts, such as checking, savings, and retirement accounts.
- Eliminates the need for employees to pick up their paycheck when
they are on vacation or otherwise away from the office.
Q: Can I
require employees to use direct deposit?
A:
In a majority of states, direct deposit is
generally permitted only if the employee voluntarily authorizes it.
Typically, the employee's consent must be in writing. While a few states permit
mandatory direct deposit, states generally also list exceptions to the
requirement. Employers should check their state law for compliance. Employers
should also evaluate whether a mandatory direct deposit policy would
disproportionately exclude members of a protected class, and if so, offer other
options for the receipt of wages. Note: For state specific requirements
around direct deposit, Comprehensive HR Clients can access a 50-State Survey
covering direct deposits in their HR Encyclopedia.
Q: When
should I get employees' authorization for direct deposit?
A:
Most employers seek authorization of direct deposit
at the time of hire, when employees are filling out other new hire paperwork.
Even if employees initially decline direct deposit, let them know that they can
join at any time. You may want to remind employees of the direct deposit option
at least annually in case their circumstances or needs have changed.
Q: Even
though my state prohibits me from requiring employees to use direct deposit,
can I encourage them to use direct deposit?
A:
Yes, employers may encourage employees to use
direct deposit. To promote greater use, consider mentioning the benefits of
direct deposit for employees, including the ones listed above.
Q: If I use
direct deposit, do I still need to provide a wage statement to employees?
A:
Most states require employers to provide a wage
statement to employees each pay period, regardless of whether wages are paid by
paper check or electronically. In the absence of a specific requirement, it is
a best practice to provide a wage statement each pay period. Note: For
state specific requirements around what information must be on a wage
statement, Comprehensive HR Clients can access a 50-State Survey covering wage
statement requirements in their HR Encyclopedia.
Direct
deposit can benefit both employers and employees. When implementing direct
deposit, make sure your policies and practices regarding wage payments and
direct deposit comply with federal, state, and local laws.