Research Summary: Direct deposit payments are by far the most common way Americans get paid. In fact, 94% of businesses pay their employees through direct deposit.
However, far from just being the popular choice, some states even allow businesses to make direct deposit mandatory for all employees. 20, to be exact, have opted to direct deposit laws that make mandatory direct deposits an option for some or all businesses.
With that in mind, we’ve investigated all of the most essential facts about mandatory direct deposit in the US, and according to our extensive research, these are all of the states with related laws:
| State | Applicable Sectors | Covered Employers |
|---|---|---|
| Alabama | Private sector only | All employers |
| Arizona | All sectors | All employers |
| Indiana | All sectors | All employers |
| Iowa | All sectors for employees hired after July 1, 2005 | All employers |
| Kentucky | All sectors | All employers |
| Louisiana | All sectors | Public sector, State government |
| Maine | All sectors | All employers |
| Massachusetts | All sectors | All employers |
| Michigan | All sectors | All employers |
| Minnesota | The Commissioner of Labor & Industry only (public sector) | All employers under various statutes |
| North Carolina | All sectors | All employers |
| North Dakota | All sectors | All employers |
| Oklahoma | Private sector and State government only | All employers under different circumstances |
| South Dakota | All sectors | All employers |
| Tennessee | All sectors | Private employers with at least five employees |
| Texas | All sectors | All employers |
| Utah | All sectors | Private employers except those in farm, dairy, agricultural, viticulturally, or horticultural pursuits; stock or poultry raising; household domestic service; or other employment in which a written agreement provides different terms |
| Washington | All sectors | All employers |
| West Virginia | State institutions of higher education only | All employers |
| Wisconsin | All sectors | All employers |
States With No Direct Deposit Regulations
On top of the 20 states that allow employers to implement mandatory direct deposits for employees, there are an additional five that have no laws relating to the subject. In these states, it may be possible to have mandatory direct deposits, even if there’s no law stating such. These five states include:
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Mississippi
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Missouri
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Nebraska
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Ohio
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Pennsylvania
Direct Deposit Law Restrictions And Requirements
Even in the states where employers can implement mandatory direct deposit laws, there are some restrictions and requirements they need to follow. These include:
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Employers cannot require employers to use a specific bank for direct deposit.
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Employers cannot charge employees an extra fee based on the payment method.
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Employees must have access to their pay stubs.
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If an employee doesn’t have a bank account, direct deposit payments must be made with a paycard.
Pay stubs are an important part of ensuring employees have information about their direct deposit. While federal law does not mandate pay stubs for workers, many states do require pay stubs to be provided to employees. Even in the states that don’t, employees have the right to request payroll records.
In total, there are 11 states that require mandatory printed pay stubs, including Arizona, Colorado, Connecticut, Hawaii, Iowa, Maine, Minnesota, New Mexico, North Carolina, Texas and Vermont. On the other hand, eight states don’t require pay stubs; Arkansas, Florida, Louisiana, Mississippi, Nebraska, South Dakota, Tennessee and Virginia.
Other states allow electronic pay stubs, and these are the three requirements that must be met:
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Easy electronic access
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Employees must have a unique, secure login
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The pay stubs can be printed out
Direct Deposit Employer Benefits
Paying employees via direct deposit has many benefits for employers. These include:
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Cost savings. Employers who choose to pay with direct deposit don’t need to pay for checks and can save a lot of money on printer supplies.
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Reduced fraud and theft risk. When employees are given direct deposits, there’s reassurance that the money is safe, as a check could be stolen by someone else, as well as fabricated or altered.
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Secure information. Employee information is secured with passwords and other safety measures, further reducing the risk of theft.
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Greater control. Direct deposit provides employers with more control over payroll and payroll expenses.
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Timely payments. Payments can be made more quickly and provided even when employees are away on payday.
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Reduced bookkeeping. Payments are easier to track and record as they process immediately.
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Better access. Even if they’re away, employers can process payroll and pay employees.
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Eco-friendly. The lack of paper and printing required for direct deposit makes it a more eco-friendly option for employers.
Direct Deposit Employee Benefits
Unlike other aspects of the employer-employee relationship, direct deposit benefits both parties. On the employee side, here are some of the top benefits that come with being paid via direct deposit:
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Paycheck cannot be lost or damaged. Checks can easily be dropped on the sidewalk or tossed in and ruined with the laundry. Being paid through direct deposit prevents these incidents from occurring.
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Can correct payments quickly. If an employee notices that their pay is incorrect, they can easily contact their employer and fix the issue.
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Paid from home. Employees don’t need to make a trip to the bank to cash or deposit a check, and instead can be paid from the comfort of their homes.
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Instant access. Employees can use their paycheck as soon as they receive it instead of having to take extra steps or wait several days for the money to transfer.
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Get paid anywhere. Employees can receive their direct deposit anywhere, anytime.
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Easy saving. Payments can easily be transferred between accounts, making it easier for employees to save money.
Mandatory Direct Deposit FAQ
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Why do some jobs not make a direct deposit?
Some jobs don’t make a direct deposit because employers prefer physical wages or because employees choose to receive physical wages. In many cases, this might be because the employer or employee doesn’t have a bank account, making it impossible to process a direct deposit.
This is especially true for small employers with only a few employees, employers in rural areas, or older and younger employers who don’t have a bank account.
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How much does it cost an employer to make a direct deposit?
Direct deposit typically costs between $1.50 and $1.90 in transaction fees for each individual deposit. While setting up direct deposit can cost as much as $50 to $149 in set-up fees, this is still less than the cost of physical wages over time.
For example, the average office printer costs $900–$3,000, and the average cost of printing and issuing checks is about $6 per check.
With that in mind, direct deposit is usually far more cost-effective.
Conclusion
Direct deposit is common practice in the US, but it is important to know which states allow employers to make it mandatory. In total, there are 20 states that allow employers to have mandatory direct deposit and five states where there are no direct deposit regulations.
And there’s a reason why states allow this practice, as direct deposit provides many benefits for employers and employees. From increased security to better access, direct deposit is one of the few pay-related policies that benefit employers and employees at the same time.
Overall, when starting a business, it’s important to ensure that you understand the laws of your state, as well as the desires of your employees.
Author
Jack Flynn is a writer for Zippia. In his professional career he’s written over 100 research papers, articles and blog posts. Some of his most popular published works include his writing about economic terms and research into job classifications. Jack received his BS from Hampshire College.
