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Make direct deposit an option, not a mandate

by on
in Human Resources,Workplace Communication

Paying employees via direct deposit saves time and money. But can you mandate that all employees must receive their wages through direct deposit? The answer is "No," according to the U.S. Labor Department. Here's why:

The federal Fair Labor Standards Act (FLSA) says direct deposit is an acceptable method of paying wages only if employees are also given the option of being paid by cash or check.

The problem? At least 12 states have laws that appear to permit compulsory direct deposit: Kentucky, Louisiana, Maine, Massachusetts, North Carolina, North Dakota, Ohio, South Carolina, Tennessee, Texas, Washington and Wisconsin.

Key point: Because those state laws provide less protection for employees than the federal FLSA, the federal law takes precedence.

As a result, even if your state seems to allow compulsory direct deposit, you must comply with FLSA regulations, which say that direct deposit is one option but not the only option. FLSA effectively negates state rules.

Final tip: If you offer direct deposit, the employee (not employer) chooses the financial institution.

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