Can an employer require direct deposit to be the payment method?

When paying employees in the US, direct deposit is the standard method, offering convenience for both employers and employees. But some individuals may not want to be paid this way, which begs the question: “Can an employee refuse to be paid by direct deposit?”

In short, the answer depends on the laws of the state in which your employee works — and these laws vary. 

In this article, we’ll provide a comprehensive overview of the federal and state regulations, enabling you to understand and navigate the complexities of payroll compliance for your business. So let’s jump straight in.

What does federal law say?

The federal Electronic Fund Transfer Act (EFTA) sets the minimum protections for employees when it comes to electronic wage payments — including direct deposit. Under this law, employers are not prohibited from requiring their employees to receive wages through direct deposit, although there’s a big caveat:

Employers cannot require employees to use a specific financial institution — unless they also offer another way to get paid (like paper checks or paycards).

This means that you can require direct deposit only if your employees are allowed to choose where their paycheck goes (i.e., to their own bank or credit union).

If you want to require them to use a bank of your choosing, then you must give them a completely different payment option, such as a paper check.

What states do not allow mandatory direct deposit?

While federal law sets these baseline protections, state laws can impose additional requirements or restrictions. As a result, some states — such as California, New York, and Florida — do not allow mandatory direct deposit.

Here’s a full breakdown of each state’s rules:

Employee rights and considerations

Even in states that allow mandatory direct deposit, employees still have important protections under both federal and state law. As an employer, you can’t just set and forget payroll — you need to respect individual choice, ensure fair access to wages, and avoid hidden costs.

Here’s what you should always keep in mind:

Employees choose their bank

Federal law guarantees employees the right to decide which bank or credit union receives their paycheck. If you’re requiring them to use a specific institution, that’s a compliance red flag — unless you offer a meaningful alternative payment method.

Pay stub access is mandatory

Employees must be able to review their pay details, either digitally or on paper — depending on the laws of their state. This includes hours worked, deductions taken, and wages earned.

Fees can't eat into pay

If you offer pay via debit cards or paycards, those methods must allow employees to access their full wages without fees. This includes balance inquiries, ATM withdrawals, and monthly maintenance fees.

Note that some states go further by banning any pay method that results in wage deductions.

Accommodations may apply

Employees who are unbanked, have religious objections, or face technological barriers may be legally entitled to opt out (or request alternative arrangements).

For employees without bank accounts, you might consider prepaid debit cards (although, as mentioned, these should be accessible without fees), or traditional paper checks.

Setting up direct deposit

To implement direct deposit, you’ll need to:

1. Obtain authorization. In states where authorization is required, you’ll need to secure written consent from your employees.

2. Collect their banking information. Gather the necessary details, including bank name, account number, and routing number.

3. Choose a payroll provider, or run it in-house. Select a reliable system to process your direct deposits efficiently, or manage it yourself in-house (note: this can be a massively time-consuming process).

4. Ensure compliance. Stay updated on both federal and state laws to avoid legal pitfalls. Again, if you run payroll in-house, this can be complex and time-consuming.

Check out our full, in-depth, step-by-step guide on how to set up direct deposit for your US-based employees.

How can Remote help?

As mentioned, handling payroll direct deposits in-house (or even through a small, local provider) can be manual and time-consuming.

But when you use an automated platform like Remote Payroll, the entire process is simple, quick, and straightforward.

Remote supports ACH direct debit, meaning we automatically pull funds from your company bank account and transfer the payments to your employees. This means no manual uploads, and no banking headaches.

It also means full compliance with direct deposit laws, as well as all local, state, and federal payroll tax laws.

To see exactly how we can make payroll a breeze for your business — and reduce risk, boost security, and help you scale in the process — speak to one of our friendly experts today.