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You may be wondering if there are any direct deposit rules by state and if you are doing business in one that makes it a requirement to pay employees this way. In recent years, direct deposit has been picking up steam because it simplifies how employers pay their employees. Many companies find it easy to set up, and with their paycheck deposited automatically into their bank account, employees appreciate the convenience (and fewer trips to the bank).
But do employers have to pay wages with direct deposit? And if a business wants to pay wages this way, does that mean that employees are required to authorize this? In this employer’s guide, we’ll touch on what direct deposit is, an overview of how to set it up, and details on what the rules are depending on where you do business.
State-by-state resource
If you are only looking for where direct deposit could be mandatory, click any state in the map below for more information. And if you would like to learn more about direct deposit, keep reading for some of how it works.
What are the direct deposit rules by state?
Defining direct deposit
In a nutshell, direct deposit is an electronic funds transfer (EFT) that allows an employer to securely and directly send money into an employee’s bank account, eliminating the need for a paper check or other payment method.
Did you know?
Other types of EFT transactions include phone payments, ATM transactions, and electronic checks.
So, during this process, how do the funds move from Point A to Point B?
- First, employers initiate the transfer from their designated bank or financial institution
- What happens next? Using the Automated Clearing House (ACH), the transfer is directed to the appropriate employee bank account
- Once set up, transactions can be automatically initiated, but before that can happen, the recipient (employee) will need to provide their banking details to their employer
Setting up direct deposit
The first thing you’ll need to do is identify the bank or payroll service provider you’ll be using to process your direct deposits. Once this is complete, there is some must-have information you’ll need from your employees, including the following:
- Bank account number
- Routing number (ABA number)
- Account type (checking or savings)
- Bank name and address
- Specific details regarding deposit amounts, which are only necessary when more than one bank is used by the employee
- Employee’s Social Security number
- Authorization form with the employee’s signature
Depending on your financial institution, there may be an initial charge for setting everything up, though the charge rarely runs more than $150. There may also be a per-person charge for each employee, but typically, the charges are minimal.
Regular direct deposit usually takes one to two days to process. You’ll need to have your direct deposit transfer completed by your specified lead time, which varies, depending on your bank and your payroll service provider. For instance, if you wish to pay your employees on Friday, and you have a two-day lead time, you’ll want to deposit funds by Wednesday. If you have a 5-day lead time, you’ll need to deposit funds the Friday before.
For businesses concerned about security, it’s one of the safest methods to make payments, with federal safeguards in place to protect accounts from unauthorized or incorrect transfers.
Read this next
Though this is a broad overview of what’s needed to put this type of payment in place, we also have an in-depth guide on setting up direct deposit for employees.
Next, let’s dive into some of the reasons why this payment method is so popular.
Why do employers use direct deposit?
Employers benefit in several ways:
- Saves money since peripheral items such as check stock, printer ink, envelopes, and postage are eliminated
- Helps with productivity because staff will no longer need to manually process checks or stuff and mail checks into envelopes
- It provides additional security, since problems such as lost or stolen checks become a thing of the past
- It helps to ensure that employees, regardless of where they’re located, are paid on time
- There is also peace of mind because it eliminates the need to reconcile cleared checks or issue a stop payment on a lost or stolen check
- If your company relies mostly on independent contractors, the good news is that they can also receive wages in this manner, reducing the number of checks you need to manually process.
Is there a federal law about direct deposit?
31 USC 3332 requires that all federal wages, salaries, and retirement payments be made by direct deposit. But when you get into a federal mandate for private employers, that’s when the waters become a little murky.
That said, per Uncle Sam, any business that is depositing wages directly into their employee bank accounts is required to follow the regulations that are stated in The Electronic Funds Transfer Act or EFTA. The EFTA was created in 1978 with the purpose of protecting consumers that engage in electronic funds transfer activities from less-than-ideal circumstances, such as unauthorized EFTs, bookkeeping errors, or incorrect transfer amounts.
The Federal Reserve Board implements EFTA directly through Regulation E, which provides guidelines for electronic fund transfers including ATMs, direct deposit, other ACH transactions, and point-of-sale transactions. In other words, if an employer decides to offer direct deposit to their employees, they are required to follow all federal rules, including Regulation E.
Data to know
According to a 2023 Getting Paid in America Survey from Payroll.org (PAYO) over 95% of employees shared that their employer pays them by direct deposit.
Source: 2023 survey data
Can direct deposit be mandatory for employees?
Depending on the state your business is in, you can make direct deposit mandatory for your employees. But even if you’re in a state where mandatory direct deposit is available, there are still some restrictions employers must follow, including:
- Employers cannot require an employee to use a specific bank
- Employers cannot charge their employees a fee for using direct deposit
- Employers must provide employees with access to their pay stubs
- If an employee does not have a bank account, they can be paid via paycard
Keep in mind that even the states that do permit mandatory direct deposit may have specific rules and regulations in place. It’s always best to check with the state or states where you’re paying employees to make sure that you’re up to date on the latest laws.
The chart below lists each state and whether the employer is permitted to require direct deposit or if employee consent is required. For any states we could not source a citation or reference, we list that below.
| What are the direct deposit mandatory states? | ||
| State | What is the rule regarding direct deposit? | Can an employer require it? |
| Alabama | Private-sector employers may require this pay method, but public-sector employers may not. No citation is available. | Private sector: Yes |
| Alaska | Employers cannot require direct deposit. However, employers may pay this way if an employee voluntarily authorizes it, and the wages are deposited into a financial institution of the employee’s choosing. | No, need employee consent |
| Arizona | Employers may require direct deposit to an employee’s choice of financial institution with the employee’s consent. If no financial institution is provided, the employer may deposit the employee’s salary payments to an electronic payroll card account, if the employee agrees to it. | No, need employee consent |
| Arkansas | The employee may opt out of this payment method by providing the employer with a written statement requesting their wages by check. | No, need employee consent |
| California | Permitted if the employee has voluntarily consented to this payment method. | No, need employee consent |
| Colorado | Employers may pay by direct deposit if it’s authorized by the employee and the deposits are made to the financial institution of the employee’s choosing. | No, need employee consent |
| Connecticut | Permitted only with the written or electronic request of employees. | No, need employee consent |
| Delaware | Only if employees sign a written request authorizing it. In lieu of cash or check, regulations adopted by the Delaware Department of Labor also authorize employers to use payroll debit cards for wage payments. | No, need employee consent |
| District of Columbia | Private employers may not require direct deposit and only use it if employees voluntarily give written authorization. Public-sector employees may only be paid by direct deposit or delivery of the check by US mail to their residences. Citation: Private employers: D.C. Code § 32-1302. Public-sector employers: D.C. Code § 1-611.20. | No, need employee consent |
| Florida | Upon written consent, an employer may direct deposit wages to an employee’s designated financial institution. Employers cannot fire employees who refuse authorization. | No, employers are prohibited from requiring direct deposit. |
| Georgia | Direct deposit of wages is permitted with the consent of the employee. | No, need employee consent |
| Hawaii | Employers may pay by direct deposit if both the employer and employee consent to it. | No, need employee consent |
| Idaho | Permitted if voluntary written authorization is received from the employee. | No, need employee consent |
| Illinois | Direct deposit of a paycheck into a bank or other financial institution is permitted. However, employers may not require it and employees who authorize it designate their own financial institutions. | No, need employee consent |
| Indiana | Employers may make direct deposit mandatory, and payment must be made to the employee’s choice of financial institution. | Yes |
| Iowa | Employers may not require employees hired before July 1, 2005, to participate, though some new hires may be required unless:
|
Yes (with certain stipulations) |
| Kansas | Employers can choose from the following payment methods, regardless of employee consent: (1) cash; (2) locally negotiable check or draft; (3) electronic fund transfer; or (4) payroll card. Employers who use electronic fund transfer must provide an option for employees without a bank account. | No, need employee consent |
| Kentucky | Mandatory direct deposit is permitted, but employees must be able to withdraw their full wages at no cost. | Yes, with stipulations |
| Louisiana | Public sector: All state-government executive branch agencies, state boards, commissions, and corporations are required to provide electronic direct deposit payroll for state employees. Private sector: No law in place. | Public: some requirements
Private: There’s no law on the books |
| Maine | Mandatory direct deposit is allowed if the employee can withdraw their entire net pay without additional costs. Otherwise, they can choose another method. | Yes, with stipulations |
| Maryland | Per an employee’s written authorization, an employer may pay an employee’s wages with direct deposit. | No, need employee consent |
| Massachusetts | According to the General Court of the Commonwealth of Massachusetts, employers may require direct deposit, but may not choose the bank. | Yes |
| Michigan | Effective December 21, 2010, employers may require an employee to receive wages through direct deposit or payroll debit card (but certain stipulations apply). | Yes, with stipulations |
| Minnesota | Employers may require it, with certain stipulations (if the employee receives a written objection). | Yes, with stipulations |
| Mississippi | No state law about paying employees this way. | No current law |
| Missouri | Wages may be paid by cash or check. Missouri has no regulations governing private companies. With certain exceptions, all state employees are required to participate. | State employees, with stipulations |
| Montana | Employers may not require direct deposit. | Not allowed |
| Nebraska | There are no laws currently in place. | No current law |
| Nevada | Employers cannot require direct deposit, but employees can elect it if they can get immediate payment in full, receive at least one free transaction per pay period, any other fees are prominently disclosed and consented to in writing, and there are no other unreasonable requirements or restrictions. | No, need employee consent |
| New Hampshire | Permitted if the employee voluntarily authorizes it to a bank of their choice. Additionally, if an employer pays employees via electronic funds transfer or direct deposit, it must also offer them the option of being paid with checks from a bank that is convenient to the employee’s workplace where they can cash them for the full amount of wages due. | No, need employee consent |
| New Jersey | Employers may distribute wages this way as payment if the individual employee consents to it. | No, need employee consent |
| New Mexico | Wages may be paid, with the voluntary authorization of the employer, employee, and financial institution, by depositing them into the employee’s account in any bank, savings and loan association, credit union, or other financial institution authorized by the United States. | No, need employee consent |
| New York State | Before an employer can pay or deposit an employee’s net wage or salary in a bank or other financial institution, the employer needs written consent from the employee, unless the employee works in a bona fide executive, administrative, or professional capacity earning more than $1,300 a week. | Need employee permission, with some exceptions |
| North Carolina | Employers may pay wages by direct deposit if payments are made in full on designated paydays, subject to authorized deductions and legal withholdings. Employees must be free to choose their own financial institution if this is the only option offered. | Yes, with certain stipulations |
| North Dakota | Employers may require direct deposit of paychecks in the financial institution of the employee’s choice. If an employer also offers wage payment with a pay card (stored value card), the employee may choose to be paid with a paycard instead. | Yes, with certain stipulations |
| Ohio | Ohio does not explicitly allow or prohibit employers from requiring direct deposit. | No |
| Oklahoma | An employer must pay wages in cash, by electronic means, or by checks or drafts that are convertible into cash on demand at full face value. As of November 1, 2022, employers have the discretion to pay employee wages by deposit on payday at the employee’s designated financial institution or, if the employee does not consent or designate a financial institution, to a payroll card account. | Yes |
| Oregon | Employers may use direct deposit without employee consent, but the employee may opt out , either verbally or in writing. | Yes, with certain stipulations |
| Pennsylvania | Permitted only with prior written permission of the employee. | No, need employee consent |
| Rhode Island | Direct deposit is only permissible upon written request of employees and consent of the employer. | No, need employee consent |
| South Carolina | Employers are permitted if payments are made through a federally insured financial institution in South Carolina. Employees must be given a statement of earnings and withholdings. Deposit plans must allow each employee at least one free withdrawal for each deposit. | Yes, with certain stipulations |
| South Dakota | Employers are permitted to require it. | Yes |
| Tennessee | Employers may use direct deposit as a method of paying wages. The state attorney general has issued an opinion seeming to say that employers can require direct deposit. | Not determined |
| Texas | Employers who pay by direct deposit must:
|
No, need employee consent |
| Utah | Permitted, but an employee may refuse to have their wages deposited by electronic transfer by filing a written request with the employer. However, an employee may not refuse to have wages deposited by electronic transfer if either of the following occurs:
|
Yes, with certain stipulations |
| Vermont | Employers must have written authorization from employees. | No, need employee consent |
| Virginia | Employers cannot require the direct deposit of paychecks. If an employee who is hired after January 1, 2010, fails to designate an account for the receipt of direct deposits, the employer may pay wages or salaries to such employee by credit to a prepaid debit card or card account. | No, need employee consent |
| Washington | The Department of Washington Labor and Industries says employers can require direct deposit of paychecks (with no cost to the employee). | Yes, with certain stipulations |
| West Virginia | Per Virginia code, any person, firm, or corporation may compensate employees for services by cash order, which may include checks, direct deposits, payroll cards, or money orders. Banks must be convenient to the place of employment where suitable arrangements have been made for the cashing of the checks by employees, or deposit of funds for employees for the full amount of wages. | Yes, with certain stipulations |
| Wisconsin | Employers may require direct deposit if employees are given the right to designate the recipient bank and there are no charges to the employees for it. Exceptions are necessary for individuals who are ineligible for checking or savings accounts. | Yes, with some exceptions |
| Wyoming | Permitted when employees voluntarily authorize it. | No, employers may not |
Direct deposit might be mandatory where you do business
Though paying employees by electronic funds transfer (EFT) may not be a rule where your business is located, many employers choose to use it. It can help a company’s bottom line and provide peace of mind when payday is on the schedule. If you want to learn more about how to get the ball rolling or just have questions, OnPay can help with information on how pricing for payroll by direct deposit works.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.