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What Is Mandatory Direct Deposit?

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  • Written By: N. Madison
  • Edited By: Heather Bailey
  • Last Modified Date: 11 July 2014
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Mandatory direct deposit is a situation in which an employer requires all of its employees to receive paychecks via direct deposit. This usually means each employee must have a checking account as well, as direct deposits are typically submitted to this type of account. Some employers do offer alternatives to having checking accounts into which payroll funds are deposited, however. In some cases, for example, an employee may alternatively have his money deposited into a savings account or even onto a prepaid credit card. It is important to note that mandatory direct deposit is illegal in some places.

Direct deposit is the electronic transfer of funds into a party's account. Many employers offer direct deposit, and some companies that work with independent contractors do as well. In most cases, direct deposit is optional, and employees can opt to receive payment via paper checks instead. There are cases in which employers do not give their employees this choice, however. When employees are required to have an account into which their payroll funds can be deposited, this is referred to as mandatory direct deposit.

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Many people prefer direct deposit to traditional methods of handling payroll. Employees often prefer it because they have no need to go to a bank or check-cashing business to have their payroll checks cashed. They are often able to access their payroll funds sooner as well; direct deposited funds are usually available on the same day they are posted while payroll checks sometimes take a few days to clear. There are usually no fees involved with receiving a direct deposit, and this type of payment cannot be lost in the mail. As far as employers are concerned, processing direct deposited payroll funds may be easier and require less paperwork.

Though direct deposit can be convenient for both employers and their employees, some people object to it when it is mandatory rather than optional. Some people object to mandatory direct deposit because it requires the receiver to have an account into which to deposit payroll funds while others may simply prefer paper checks that they can cash or deposit wherever they wish. In some cases, employees may also object because they do not like having the right to a paper check taken out of their hands.

While direct deposit may be popular with a number of employers, the option of making it mandatory is not available in all places. Some jurisdictions have laws against this practice. Others may require employers to provide alternatives for employees who cannot obtain traditional bank accounts.

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