Direct deposit
Direct deposit is the electronic transfer of an employee’s net pay into their bank account on payday, replacing a paper paycheck.
Payment moves through the Automated Clearing House (ACH) network. Settlement follows same day, next day, or two banking days later, depending on the file cutoff and ACH service. Bank changes must land before the cutoff. A prenote, a zero-dollar test entry, can check account details before the first live deposit. A split direct deposit sends one net payNet pay. Net pay is the amount an employee receives by paycheck or direct deposit after every tax and deduction is subtracted from gross pay.Click to open the term amount to more than one account, following an allocation the employee sets. An ACH return is a payment the receiving bank sends back, often from a closed or invalid account.
Can you require direct deposit?
Federal rules set the floor, and state law varies widely above it. If you operate across state lines, check the rule for each work location rather than assume one company-wide policy is enforceable everywhere. Regulation E governs only which institution receives the transfer. For an employee without a bank account, federal guidance and state law decide whether you must offer a check or pay card. The state labor agency is the place to confirm the current rule.
| RULE | WHAT IT SAYS |
|---|---|
| Regulation E | You may require direct deposit only if the employee chooses the bank; if you designate the bank, offer another way to be paid, such as a paper check |
| Labor Department field guidance (FLSA wages) | Direct deposit is accepted only when employees can instead take cash or a check from you, or cash a payroll check nearby without charge |
| State law | Some states allow a requirement on Regulation E terms, subject to the field guidance; others require the employee’s advance consent; several add conditions on pay cards |
- 12 CFR 1005.10, Preauthorized transfers
- Field Operations Handbook, Chapter 30: Records, Minimum Wage, and Payment of Wages
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.