Direct deposit authorization form

When to use a direct deposit form

Use it at hire and any time an employee wants to start, change, split or stop electronic pay. It is one of the standard items on the new hire paperwork checklist, and getting it done before the first pay date saves the cost and hassle of cutting paper checks for a new class of 40 hourly hires.

The form also gives payroll the written authorization it needs to reverse a deposit made in error, for example when an employee was overpaid by an off-cycle run. Without that wording, correcting the error is slower and messier.

Can employers require direct deposit?

Partly. The federal Electronic Fund Transfer Act and its Regulation E say an employer cannot require an employee to open an account at a particular bank as a condition of employment. Employers can generally require electronic payment if the employee chooses the institution, or if a non-bank alternative such as a paper check or pay card is offered.

State law adds more rules. Several states require the employee's voluntary written consent before wages can be paid by direct deposit, and pay card rules vary widely, including limits on fees and requirements to offer free access to the full wage. Rules vary by state, so confirm the requirements for each state where you have employees before making direct deposit mandatory. For final paychecks, check whether state timing rules allow a regular direct deposit or require payment on the last day.

Preventing payroll diversion fraud

Payroll diversion is one of the most common frauds aimed at HR teams. A scammer emails HR or payroll pretending to be an employee and asks to change the bank account before payday. The email looks routine and the money is gone by the time the real employee asks where their pay is.

The controls are simple and cheap:

• Never process a bank change from email or text alone. Call the employee at the number already on file, not one supplied in the request.
• Require changes through a signed form or an authenticated self-service portal with multi-factor sign-in.
• Send a notice to the employee's existing email and phone whenever bank details change, so they can flag a change they did not make.
• Be suspicious of urgency and of requests that arrive just before the payroll cut-off.

The same discipline applies to address changes made through the employee change form.

Handling it at volume

Contact centers and warehouses that onboard a class every week cannot afford to chase forms on day one. Collect direct deposit details digitally before the start date with an online form, with field checks for the 9-digit routing number and a confirm-account-number field to catch typos. Offer a pay card for new hires who do not have a bank account; in entry-level hourly hiring, that can be a meaningful share of each class.

Plan the first pay period. A new hire who submits details on day one may not get a direct deposit on the first payday, because many payroll systems prenote new accounts for one cycle. Tell people in advance how their first pay will arrive, which avoids a wave of calls to HR.

Record-keeping and privacy

Bank account numbers are sensitive financial data. Store the form in a restricted payroll file, not the general personnel file, and limit access to payroll staff. Many state data breach laws cover account numbers, and some require notice to employees if the data is exposed. Shred paper copies once the details are in payroll if your retention policy allows, or scan and lock them down. Keep payroll records for at least the period the FLSA and your state require, which is three years for payroll records under federal rules.