Direct Deposit Laws by State

Many employers (and employees) prefer to use direct deposit for sending and receiving paychecks. There are a host of benefits to this approach, including cost savings, immediate access to funds, improved security, and easy correction of pay discrepancies. Even so, some workers still favor physical paychecks and employers must be aware of the federal and state laws that dictate whether their business can legally mandate direct deposit as the company’s sole payment method or must accommodate employees who wish to receive paper checks.

In this article, we’ll provide you with all of the information you need regarding federal and state payroll direct deposit laws so you can choose a payment system that is legally compliant and works for businesses.

Federal Direct Deposit Laws

The Electronic Funds Transfer Act (EFT) outlines federal policy related to electronic payments and direct deposit of payrolls. Within the EFT, Federal Regulation E specifically articulates the protocols and standards employers must adopt when using direct deposit or other electronic payments like pay cards to compensate their employees.

The Act requires that employers complete all of the following steps before instituting direct deposit payments for an employee:

Collect an employee-signed authorization statement with all relevant banking and bank account information
Provide each employee a summary of their rights and liabilities while using direct deposit payroll payments

EFT states that employers can require employees to accept direct deposit as a payment method, as long as employees are granted the right to select the banking institution that accepts the deposit.

Many states have direct deposit and electronic payment policies that duplicate or closely mirror the provisions in Regulation E. However, some states provide more comprehensive protections to employees that can complicate company-wide practices for employers. For instance, some states place explicit prohibitions on mandatory direct deposit, employee processing fees, and/or requirements to produce pay statements to accompany deposits.

State Direct Deposit Laws

In some cases, Payroll Direct Deposit (PDD) laws exactly reflect federal law. In other cases, they add extra restrictions, exceptions, or conditions. Based on where your business is located, you should familiarize yourself with the state laws that could impact your own payroll practices.

States That Duplicate Federal Law

Eight states lack state PDD laws that modify conditions outlined in the EFT Act and Federal Regulation E. This includes the following states: Alabama, Georgia, Hawaii, Louisiana, Massachusetts, Mississippi, Nebraska and Ohio.

States That Permit Mandated Direct Deposit

Nine states have adopted state laws that permit employers to mandate direct deposit as a payment method as long as the conditions align with federal law. This includes the following states: Indiana, Kansas, Minnesota, Missouri, South Carolina, Texas, Virginia, Washington, and West Virginia.

States With Unique PDD Terms and Conditions

A few states have notably unique policies that fall outside of the other categories we’ll explore. For instance, employers in Utah can only mandate direct deposit if they pay $250,000 or more in state payroll taxes or can demonstrate that two-thirds or more employees agree to direct deposits. Arkansas and Arizona also have distinct conditions regarding acceptable payment types and forms of written consent, which can be explored in the chart included in this article.

States That Require Employee Consent

Twenty-one states, including Florida and Illinois, mandate that an employee must agree to direct deposit before an employer can institute payments via direct deposit. In some cases, this agreement must be made in writing.

Other Considerations

Although we’ve outlined the four major categories of state PDD policy, some states have specific conditions regarding employee processing fees, qualified deposit-receiving institutions, the use of pay cards, and pay stub access for employees.

Regarding pay stub access for employees, employers should prioritize keeping diligent payroll records. Some states require that employers provide physical or digital pay stubs for each deposit, but all employees have the right to request payroll records through the Fair Labor Standards Act (FLSA).

To take a closer look at the PDD requirements specific to your state, please explore the table below:

State	Can You Make It Mandatory	Covered employers
Alabama	Private Sector: Yes Public Sector: No	All employers
Alaska	No	All employers
Arizona	Yes	All employers
Arkansas	No	Private and state-government employers
California	No	All employers
Colorado	No	Private employers
Connecticut	No	All employers
Delaware	No	Private employers
District of Columbia	No	Private Employers and Local Governments
Florida	No	All employers
Georgia	No	All employers except those in the farming, sawmill, and turpentine industries
Hawaii	No	All employers
Idaho	No	All employers
Illinois	No	All private employers and local governments, but not state and federal governments
Indiana	Yes	All employers
Iowa	Yes: Employers may not require employees hired before July 1, 2005, to participate in direct deposit. Employers may require a new employee to sign up for a direct deposit as a condition of hire unless the cost to the employee of establishing and maintaining an account would effectively reduce the employee’s wages to a level below the minimum wage.	All employers
Kansas	No	All employers
Kentucky	Yes	All employers
Louisiana	Yes	Public sector, State government
Maine	Yes	All employers
Maryland	No	All employers under various statutes
Massachusetts	Yes	All employers
Michigan	Yes	All employers
Minnesota	Private sector: No Public sector: The Commissioner of Labor & Industry may require direct deposit for all state employees	All employers under various statutes
Mississippi	No regulations regarding direct deposit	All employers
Missouri	No regulations regarding direct deposit	All employers
Montana	No	All employers
Nebraska	No regulations regarding direct deposit	All employers
Nevada	No	All employers
New Hampshire	No	All employers
New Jersey	No	All employers
New Mexico	No	All employers except employers of domestic labor in private homes and employers of livestock and agricultural labor
New York	No	All employers
North Carolina	Yes	All employers
North Dakota	Yes	All employers
Ohio	No regulations regarding direct deposit	All employers
Oklahoma	Private sector: Yes State government: Yes	All employers under different circumstances
Oregon	No	All employers
Pennsylvania	No regulations regarding mandatory direct deposit	All employers
Rhode Island	No	All employers
South Carolina	No	All employers
South Dakota	Yes	All employers
Tennessee	Yes	Private employers with at least 5 employees
Texas	Yes	All employers
Utah	Yes	Private employers except those involved in the 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
Vermont	No	All employers
Virginia	No	All employers
Washington	Yes	All employers
West Virginia	State institutions of higher education: Yes Employers subject to the WPCA: No
Wisconsin	Yes	All employers
Wyoming	No	All employers

Optimize Payroll and Direct Deposit with CAVU HCM

When employees have easy access to their funds and pay stubs, they spend less time on banking and more time impacting your organization's bottom line. CAVU HCM provides comprehensive payroll solutions to help you streamline PDD, legal compliance, and synchronize payroll with other key HR and HCM functions. Ready to implement a payroll strategy that works for your business? Contact us today to start our collaboration.