Direct deposit allows employers to electronically transfer employees' net pay into their bank accounts, eliminating the need for employees to receive a paper check. There are many advantages to direct deposit. But, we often get questions regarding its use. Below, we answer some of the top questions we receive about direct deposit.
A: There are a number of potential advantages for employers, such as:
A: There are several benefits of direct deposit that you can explain to your employees, including that it:
If you use the RUN Powered by ADP® (RUN) platform, you can allow your employees to update their own direct deposit information via Employee Access®. And employees can find Employee Access on the ADP mobile app, making it really convenient for them to use.
A: In a majority of states, direct deposit is permitted only if the employee voluntarily authorizes it. Typically, the employee's consent must be in writing. While a few states permit mandatory direct deposit, states often list exceptions to the requirement. Employers should check their state law for compliance. Employers should also evaluate whether a mandatory direct deposit policy would disproportionately exclude members of a protected class, and if so, offer other options for the receipt of wages.
A: Most employers seek authorization of direct deposit at the time of hire, when employees are filling out other new hire paperwork. Even if employees initially decline direct deposit, let them know that they can join at any time. You may want to remind employees of the direct deposit option at least annually, in case their circumstances or needs have changed.
A: Yes, employers may encourage employees to use direct deposit. To promote greater use, mention the benefits of direct deposit for employees, including the ones listed above.
A: No. Employees have the right to receive direct deposit at a financial institution of their choice, regardless of whether your state permits mandatory direct deposit. Requiring employees to use a particular bank for direct deposit would violate certain laws.
A: Most states require employers to provide a wage statement to employees each pay period, regardless of whether wages are paid by paper check or electronically. In the absence of a specific requirement, it is a best practice to provide a wage statement each pay period.
A: The Federal Reserve and banks will be closed on federal holidays, so direct deposits generally won't be posted to employees' accounts on that day. Keep in mind that some states require payment on the preceding business day, if a scheduled payday falls on a holiday. Absent such a requirement, employers generally have the option of paying employees on the business day before or after the holiday.
When your check date falls on a bank holiday and you wish to pay employees the day before, adjust your check date to avoid delaying payroll delivery.
A: Many states have rules about the location and method for final pay. Check your state law for details.
Example: In California, the employee must receive their final pay at the place of discharge in the case of an involuntary termination. When an employee resigns or retires, California requires that employees receive their final pay at the office of the employer in the county they had been performing labor. Employees who quit or retire without providing a 72–hour notice are entitled to receive payment by mail, if they request and designate a mailing address. The date of the mailing constitutes the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of resignation/retiring. In California, for both voluntary and involuntary terminations, an employee who has authorized final pay by direct deposit may receive final wages in this manner provided the other final pay requirements are met.
Make sure your policies and practices regarding wage payments and direct deposit comply with federal, state and local laws.