Is it legal (in the U.S) for an employer to require that an employee set up direct deposit for their pay, and refuse to cut a paper paycheck? Or would it vary by state employment laws?
Usual disclaimer. I’m not your lawyer, and this isn’t reliable legal advice. See a lawyer licensed in your state for that.
In general? Assuming you’re an employee at will, and there’s no contract in place that says otherwise, I know of no reason why this would be illegal. I’ve never researched the issue, but am aware of similar policies. I’m also aware of at least one article on the subject of check fraud that recommends such a policy, to cut down on opportunities for forgery.
Why do you object to this policy, as you seem to?
(On review, the article suggests that employers encourage direct deposit for employee paychecks, which is not quite the same as the mandatory policy described in the OP. But I’m sure that the author wouldn’t disagree with my first comment. Don’t ask me why I’m sure.)
I don’t claim to be an expert, but at my former company they went within the last year to requiring direct deposit for all expense report reimbursements. Since this was a multi-state insurance company my WAG is that their legal department determined that such a practice is legal at least in the states where they do business.
My question is more to settle a debate, than anything. I’m being told that it is illegal, because of some discrimination issue or something (vague debater, there). I contend that an employer in an at-will state can fire you for any non-discriminatory reason.
Sure, encouraging direct deposit is one thing, and that’s fine. I just wondered if it could be a mandatory requirement for employment.
What would happen if an employee refused to have direct deposit (for whatever reason)? Wouldn’t the employer still be legally bound to compensate that employee with a paper check?
Why? Your answer is in your first paragraph.
Or look at it this way. What if the employer did pay by check… and the employee insisted on cash? Same analysis, as far as I can tell.
Hell, except for possible minimum wage and tax withholding reasons, I can’t see why an employer couldn’t tell an at-will employee that, starting next month, he’d be paid in copper ingots, or Pokemon cards.
Well, sure, taxes and withholding and such are why cash isn’t a viable option (for legit employers, at least). The person with whom I’m arguing insists that an employer must cut a paper check for employees who don’t wish to disclose their banking info, or risk prosecution. I disagree with him, and I say that in an at-will employment situation, the employer can stipulate whatever payment options it pleases (within reason, and surely not copper ingots or the like).
I’m fairly certain that if my employer decided to pay in Pokemon cards rather than some form of U.S. funds, I’d have a nice lawsuit against them. 
Federal employees, in any case, are required by law to be paid by direct deposit. (PL 104-134)
I’m fairly sure (though I can’t be certain, since all of my work documentation is actually in the office) that Pennsylvania civil service employees are similarly required to accept direct deposit of pay.
From the April, 2003 issue of HR Magazine, published by the Society for Human Resource Management:
“Moreover, in most states, private employers cannot force current employees to change the method by which they’re paid, though generally a company can make electronic payment a condition for employment for new employees.”
The article gives several issues of government employers, such as those cited by previous posters, that do require different deposits. In the area of employment law, somewhat surprisingly, it’s not valid to argue that if the government does it, it must be OK for others to do.
- Told by whom?
- How could it be a discrimination issue?
The US military requires direct deposit and AFAIK so does the federal civil service. ISTM that the legality has already passed muster.
Well, the company is probably set up to cut a check as necessary. New employees won’t have direct deposit set up already, and it does (or used to) take a payment cycle or two in order for direct deposit to really work.
Okay, so must you have direct deposit to get paid. Definitely NOT. The employer must pay you for the time you’ve worked. There’s no way around that. But… the employer just won’t let you work if you won’t play ball, so there.
My company across the United States requires all salaried employees to be paid via direct deposit. And our “pay stubs” are online only. I prefer this. )I think that outside the United States even hourly employees must have direct deposit; the lines at the ATM here at work are really, really long on Thursdays.)
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Told by a friend who is also a business owner, so presumably might have a little (apparently very little) knowledge of employment law. It turned into a casual debate.
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I’ve no idea why it would be discrimination; he threw that into the argument, and it didn’t make any sense to me either.
So it seems the answer to my original question is, it depends. The government can do it, but private companies can only do it to new employees, depending on the state. How very fuzzy.
Balthisar: My company, a Korean private school, requires direct deposit. While awaiting the issue of my alien registration card, I was paid in cash. Once the card was issued, then I was able to open a local bank account and thus participate as required in DDP.
No, cash is a viable option. The employer makes deductions just as he would with a payment by check, or direct deposit, or whatever. The employer also remits the appropriate withholdings to the appropriate agencies.
Although cash payment is sometimes use to leave no paper trail for violations of the above, that is not always the case. Legitimate, properly deducted and recorded cash payment does exist.
I’ll be. Would the employee also receive the appropriate paperwork, like a pay stub or similar document, indicating withholdings?
He should. I did. It was 35 years ago, at a restaurant. We received our weekly pay in an envelope that was printed on the outside with a little chart with spaces for gross pay, federal withholding, state withholding, Social Securtiy, net pay, etc. The employer filled in the appropriate figures.
Probably only a few employers do this, as it’s often simpler to write a check than to handle the cash. And for big paychecks the amount of cash required would present significant potential problems. But I imagine it’s how it’s done at day-labor businesses that advertise paying in cash every day.
I’ve done some digging, and was surprised to learn that there are at least some states that prohibit mandatory direct deposit for wages. Must be a strong currency exchange lobby.
I’m paid via direct deposit. The strange thing is, my copy of my deposit (looks like a paycheck, except it says VOID across it) is mailed to my house. At one time we could pick up the deposit confirmations at work, but one of the employees had her “check” envelope in her desk, and when she came back after a day off it had been opened, we presume by an intern.
Since then, they mail it off. Seems like a waste of postage to me, that the managers of the departments, who mostly have offices, could keep the “checks” in their offices if an employee is off, but then again, not my decision.
I suppose it could be a discrimination issue in a situation where employees might have difficulty opening a free checking account. I actually once had a civil service job where many of my decently- paid, college educated, co -workers went straight to a branch of the bank which issued the paycheck to cash the check and then bought money orders to pay their bills because they didn’t have bank accounts. I can only assume that they didn’t have bank accounts because of the fees or because they had poor credit.
Many, many, big banks will give you free checking accounts with liberal limits just for agreeing that your paycheck will be deposited via direct deposit. My NBD-BankOne-Chase-whoeversnext account is such. I pay fees only for non-BankOne ATM use. So that’s not really a valid excuse for most people. What about poor credit? Banks don’t look at credit history, otherwise no one would be able to have a bank account. I got my first checking account when I was in high school without any credit history whatsoever. They do look, though, to see if you have a negative history of owing banks money. That can happen if the “evil man is out to get you,” but more often than not it’s because you overdrafted and didn’t pay your fees. One time while at my bank waiting for free notarization at the customer service desk, I overheard the representative telling someone that they owed Comerica some quantity of money, and that as soon as they paid off Comerica, then BankOne’d be happy to open an account for them. Sounds pretty liberal to me; you don’t even need to have a good history, just a paid off, clean history. So these people with negative banking histories really have no one to blame but themselves. If they can’t get a bank account in order to secure a job, then possibly it’s in the employers’ best interests to hire someone else anyway.
Here is a good article on the “unbanked.” Since minorities and recent immigrants tend to not have a checking account as compared to other applicants, I can see where some might claim a policy to be discriminatory.
I can see requiring direct deposit for professional positions. For an hourly employee, especially low wage, I think a direct deposit only policy would not make sense.