Don’t mandate direct deposit of employees’ pay — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Don’t mandate direct deposit of employees’ pay

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in Small Business Tax Deduction Strategies

Issue: Some state rules seem to clash with federal rules over whether you can require employees to accept pay via direct deposit.

Risk: By following your state law, in some cases, you could actually run afoul of federal law.

Action: Follow federal law and give employees the option of direct deposit; don't mandate it.

Paying employees via direct deposit saves time and money, both for your organization and its employees. 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? Most states have their

own direct-deposit regulation, and not all comply with FLSA. At least 12 states appear to permit compulsory direct deposit: Kentucky, Louisiana, Maine, Massachusetts, North Carolina, North Dakota, Ohio, South Carolina, Tennessee, Texas, Washington and Wisconsin. But because those state laws provide less protection for employees than the federal FLSA, the federal law takes precedence.

Bottom line: Even if your state seems to allow compulsory direct deposit, your organization must comply with FLSA regulations, which say that direct deposit is one option but not the only option. FLSA effectively negates state rules.

Most remaining states, other than the 12 mentioned above, either have no state law on the issue or allow payroll direct deposit with employees' prior consent.

Key points: If you offer direct deposit, the employee (not employer) chooses the financial institution. Also, whatever pay system you use, federal law says you can't charge employees any fees for processing their pay.

Another potential land mine: Some organizations offer employees the option

of receiving pay via payroll access card. Employers deposit wages directly into

an account that employees can access

using an ATM-like card. Those cards can comply with FLSA direct-deposit requirements only if employees incur no fees for using them.

{ 2 comments… read them below or add one }

Justin Padgett August 4, 2015 at 11:28 pm

Okay I do not know yet if this law has been changed or is still in effect. I have worked here in my state of NC for a few different place since 2012. I have been told that I had to use direct deposit or the pay card. The pay card I was allowed one withdraw without a fee. This surely appears to clash with this law.
My second issue is one place I worked I did receive an actual live check. I have no problem with this, however I prefer most all I do is done in a cash basis. I do not have a bank account. My check was drawn on an account owned by my employer at Bank Of America. I went to the bank to cash my check and was told I had to pay 8 dollars to cash it because I did not have an account there. That has nothing to do with cashing a check that is drawn in that institution. I can see if it was drawn on First National and I wanted to cash it at BOA. Not the case. It is drawn on an active account at BOA. They tried to hand me some lies about risk. Bull. You can look right there and see if the money is in the account to cash it. Also tried to tell me they were providing me a service. Again Bull. BOA is providing my employer a service not me. I don’t have the option of getting paid in cash and DD or the pay card was not an option either. Therefore since I had no other option I et al are being extorted into paying for what is rightfully ours and they have no right to keep it from us. It is MY money and I am being refused access to it unless I pay them a fee. They told me I could open an account with then and then it would be cashed for free. This is nothing short of EXTORTION. I am being required to pay my money to receive my money. Am I really the only person who has had this problem? What gives? I find it very hard to believe the Feds have no idea this is being done in the name of greed and furthermore can’t believe if they know, why isn’t something being done?


Mike DeForeest September 27, 2017 at 12:29 pm

Unless things have changed, BOA must cash a payroll check drawn on one of their accounts (your employer) without any fees, so long as you have proper ID (usually a driver’s license).
I’ve used BOA for years, and we do business in 18 states with many unbanked employees and this has never been a problem for us. Our unbanked employees simply go to the nearest BOA and cash their check – no fees.


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