According to Payroll.org (formerly the American Payroll Association,) 93% of employees they questioned use direct deposit. My belief is that they only surveyed their members, payroll professionals. I doubt they surveyed real America and got feedback from the fast food worker, agricultural workers or the mechanic down the street. Not that payroll professionals aren’t real America, but you know what I mean. Based on what I find in practice, direct deposit is less than a 60% adoption rate. Maybe even much less than 50% because I am not looking at the small businesses that run their own payrolls in-house on Quickbooks or handwritten checks.
Before we get into mandating direct deposit, let’s quickly revisit the why. It comes down to saving money. According to a Wall Street Journal article, the estimate that it costs a business to issue a check can range from $4 to $20. Some of that are hard costs, such as bank fees, while much of it is the labor costs of distributing, reconciling and dealing with the problems that come with checks. Direct deposit negates, if not eliminates, the majority of that.
For the employer that sees the value in what direct deposit means for them, what are they to do if they want to go from a low number of their employees utilizing the latter to 100% of their staff doing so? Mandating direct deposit would be an option, but can you do it? Like all other answers, it depends.
Under federal law, employers can mandate direct deposit, however, employers are prohibited from requiring the establishment of an account, with a particular financial institution, to be a condition of employment. The employer may require direct deposit as long as the employee has the ability to choose the financial institution that will accept the direct deposit.
In the table below, I will update each state as it is researched. In the meantime, you can visit each state’s labor office at the following Department of Labor website: https://www.dol.gov/agencies/whd/state/contacts
Therefore, unless the employee’s state law says otherwise, employers can mandate it as long as the employee has the choice of selecting the bank. States may add extra restrictions, exceptions or conditions, so you will need to check with each state in which you have employees. There may be a need to have different company policies based on each state.
| State | Mandatory Allowed | Notes |
| Alabama | ||
| Alaska | ||
| Arizona | Yes | |
| Arkansas | ||
| California | ||
| Colorado | ||
| Connecticut | ||
| Delaware | ||
| District of Columbia | ||
| Florida | http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0500-0599/0532/0532.html | |
| Georgia | ||
| Hawaii | ||
| Idaho | ||
| Illinois | ||
| Indiana | ||
| Iowa | ||
| Kansas | ||
| Kentucky | ||
| Louisiana | ||
| Maine | ||
| Maryland | ||
| Massachusetts | ||
| Michigan | ||
| Minnesota | ||
| Mississippi | ||
| Missouri | ||
| Montana | ||
| Nebraska | ||
| Nevada | ||
| New Hampshire | ||
| New Jersey | ||
| New Mexico | ||
| New York | ||
| North Carolina | ||
| North Dakota | ||
| Ohio | ||
| Oklahoma | ||
| Oregon | ||
| Pennsylvania | ||
| Rhode Island | ||
| South Carolina | ||
| South Dakota | ||
| Tennessee | ||
| Texas | ||
| Utah | ||
| Vermont | ||
| Virginia | ||
| Washington | ||
| West Virginia | ||
| Wisconsin | ||
| Wyoming |
If you are looking to go paperless after implementing direct deposit, be sure you are issuing pay statements in accordance with state laws.
While I make every attempt to ensure the accuracy and reliability of the information provided in this article, the information is provided “as-is” without warranty of any kind. Each state’s law is different and is subject to change. PayMaster, Inc and Romeo Chicco do not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained. Consult with your CPA, Labor Attorney, and/or HR Professional to ensure you are in compliance.
