By Laura J. Maechtlen and Chantelle C. Egan

It’s payday!  If the employer uses direct deposit, an employee can conveniently and immediately access wages without going to the bank (or waiting for the check to clear).  For that reason, it might seem that every new employee would want direct deposit.  But, employers must be careful.

California requires that employers obtain written authorization from the employee first.  Indeed, while California often bucks the trends of its sister states, when it comes to direct deposit authorization, California is just one of the crowd.  Alaska, Connecticut, Colorado, Delaware, Florida, Idaho, Illinois, Iowa, Maryland, Montana, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, Vermont and Wyoming all require written permission authorizing direct deposit.

Employer Tips: 

  • Obtain Written Authorization:  If your company wants to encourage direct deposit, make sure to include a written authorization in a new employee’s welcome packet.  But, keep in mind that an employee’s decision to agree to direct deposit is a voluntary one.
  • Ensure Timely Wage Payment Pending Direct Deposit Set-Up:  Once you have received a new employee’s written authorization, you are free to set up direct deposit.  As a word of caution, direct deposit may take a few pay periods to be up and running.  In the interim, be prepared to timely distribute a check for the new employee’s wages.  Just because the authorized direct deposit is not set up, the employer is not relieved of timely distributing wages.
  • Wage Statements Must Still Be Provided:  Paying by direct deposit does not remove the obligation to provide the employees’ itemized wage statements (aka “pay stubs”) under Labor Code § 226, along with the advice of deposit.

What about final wage payments? 

Inevitably, every on-boarded new employee eventually must be off-boarded.  California’s Labor Code § 213 permits employers to pay final wages via direct deposit if an employee quits or is terminated.  While this may seem like a convenient solution for paying final wages, logistically it may prove difficult, especially if an employee’s last day does not fall on a scheduled payday.  Since there are strict time requirements associated with providing a departing employee his or her final wages, the safest bet is usually to issue a timely paper check for all earned wages, to avoid any penalties.

Workplace Solutions:  Direct deposit arrangements are often the most desirable and convenient way for both employer and employee to conduct the wage payment transaction.  Just remember you can’t do it without the employee’s written consent, and other obligations, such as to paying accurately and on time remain the same.

Up next week:  Our final post in the On-Boarding Series—Uniforms and Tools.

Edited by Julie Yap