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Q.
Our organization is considering implementing a direct deposit
program.
Can we require employees to receive
their pay by direct deposit?
A. Many employers
prefer direct deposit because of the savings in the cost of printing
and distributing checks and encourage employee participation. Some
employees may not like electronic fund transfer or may refuse to
sign the electronic deposit authorization. Federal law does not
expressly authorize or prohibit employers from requiring payment by
electronic transfer. It only makes it unlawful to require an
employee to establish an account with a particular financial
institution for receipt of electronic fund transfers, such as the
employee’s wages.
[Creating HR Policies or Employee Handbook?]
Most states, however, do
prohibit employers from requiring direct deposit and specify that
employers must obtain each employee’s voluntary consent in order to
use direct deposits or electronic transfers for pay purposes. Many
states also require that the consent be in writing. Only about ten
states allow employers to require pay by direct deposit.
Accordingly, you should check state direct deposit laws. To comply
with the majority of state requirements, make participation
voluntary and obtain the written consent of employees before
instituting electronic transfers.
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