Login
Get started

Updated: October 31, 2024

Navigating direct deposit rules by state: An employer's guide to understanding where it's mandatory

Published By:

Jon Davis

More from our experts

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.
2024_Q2_SMB_Simplify Growth_Banner_970x250_A

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:

  • Employee cost of establishing and maintaining an account for purposes would effectively reduce the employee’s wages to a level below the minimum wage
  • The employee would incur fees because of direct deposit
  • Collective bargaining agreements mutually agreed upon by the employer and the employee’s organization prohibit the employer from requiring an employee to sign up for direct deposit as a condition of hire
 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:

  • Notify each affected employee in writing, at least 60 days before the date when the direct deposit payroll system is scheduled to begin, that the employer is adopting a direct deposit payroll system.
  • Obtain information required by the employee’s financial institution that would be necessary to implement the electronic funds transfer.
 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:

  • For the calendar year preceding the pay period for which the employee is being paid, the employer’s federal employment tax deposits were equal to or more than $250,000
  • At least two-thirds of the employees of the employer have their wages deposited by electronic transfer
 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.

 

Take a tour to see how easy payroll can be.

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.

13 effective recruitment strategies to hire top talent in 2025

Explore innovative recruitment strategies any employer can use to recruit top performers in 2025.

Read more

What is PTO rollover or carryover? A state-by-state guide for employers

Learn what PTO rollover or carryover means and explore the state-by-state regulations employers need to follow for unused paid time off.

Read more

Employer’s guide to understanding what ER health cost on a pay stub means

Learn what an ER health cost on your employee's pay stub means, how it relates to employer health contributions, and why it appears in deductions.

Read more

Frequently asked questions companies have about direct deposit

  • Can an employee refuse direct deposit?

    If an employee does not work in a state where an employee can mandate direct deposit, they are free to refuse the use of direct deposit to be paid.

     

  • What if an employee does not want direct deposit?

    That depends on whether the employee works in a state where an employer can make direct deposit mandatory. If it’s not mandatory, they can be paid by an alternative method. If direct deposit is mandatory and the employee does not have a bank account, they will likely be paid by paycard.

  • What happens if you don't set up direct deposit as an employer?

    If you’re not interested in setting up direct deposit for your employees, you will need to pay them using another method:

    • Paper check
    • Paycard
    • Cash

     

  • What information do employers need from employees to set up direct deposit?

    Before an employer can set up direct deposit, they’ll need the following information:

    • Bank account number
    • Routing number (ABA number)
    • Account type (checking or savings)
    • Bank name and address
    • Details regarding deposit amounts if the deposit goes to more than one bank account
    • Employee’s Social Security number
    • Direct deposit authorization form signed by the employee
  • Is direct deposit a wire transfer?

    No, it is not.

Serving Clients for Over 30 Years

Insurance offered through OnPay Insurance Agency, LLC (CA License #0L29422)

Terms and Conditions | Privacy | Cookie Policy | Manage Cookies | Sitemap

©2024 OnPay, LLC