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Texas Mandatory Direct Deposit

Can Texas employers require employees to accept their compensation through direct deposit or debit card?

The short answer is “yes and no." Texas employers can require employees to accept direct deposit only if the employee has a bank account which provides for direct deposit, and so long as there are no fees which would reduce the employee’s pay to an amount less than the applicable minimum wage. Additionally, Texas employers can require employees to accept their pay through debit cards only if the employees sign written agreements accepting this arrangement.

Federal Law:

U.S. Code Title 15, § 1693k states that no person may require a consumer to establish an account for receipt of electronic funds transfer with a particular bank as a condition of employment. The FDIC has interpreted the above section to mean that an employer may not require its employees to receive their salary by direct deposit to a particular bank. An employer may require direct deposit if employees are allowed to choose the bank that will receive the direct deposit.

Alternatively, an employer can give the employees the choice of having their salary deposited at a particular bank (chosen by the employer) or receiving their salary by other means, such as by cash or check. The Department of Labor’s (“DOL") position/interpretation is that direct deposit of wages is acceptable as long as the employee has the option of instead receiving payment by cash or check, and so long as applicable bank charges do not effectively reduce the employee’s wage below minimum wage.

Texas Law:

Texas law will not allow an employer to require an employee to accept direct deposit if he/she doesn’t already have a bank account. However, if the employee does have a bank account, the employer can require the employee to accept direct deposit as long as the employee gets to choose the bank, is given the 60 day advance notice, and the employee is not charged any processing fees for the direct deposit.

According to §§ 61.016 and 61.017 of the Texas Labor Code, an employer shall pay wages to an employee in either U.S. currency, by a negotiable instrument on demand for U.S. currency, or by the electronic transfer of funds. An employer may elect to pay wages to an employee who maintains at a financial institution an account that qualifies for electronic funds transfer through a direct deposit plan that uses electronic funds transfer to deposit the wages in the employee's account. An employer who desires to pay wages through a direct deposit plan shall:

(1) notify each affected employee in writing, at least 60 days before the date on which the direct deposit payroll system is scheduled to begin, that the employer is adopting a direct deposit payroll system; and

(2) obtain from the employee any information required by the financial institution in which the employee maintains the account that is necessary to implement the electronic funds transfer.

Some employers offer to pay wages with debit cards which can readily be used just like cash (if approved by the employee in writing.) In Texas, employees can be paid by debit card only if they sign a written agreement to accept their compensation in that manner.

When considering this issue, one thing must be remembered. Texas is an employment at will state. Typically, unless an employee has an employment contract, or is employed under a collective bargaining agreement through a union, the employer can modify or terminate the employment at any time with or without cause. If an employer, at any time, decides they no longer want to employ someone, for any non-discriminatory reason, that employee can legally be terminated. However, an employer generally cannot modify or terminate the employment for prohibited discriminatory reasons (such as racial discrimination), or in retaliation for certain protected actions (such as whistle-blowing). There is currently no authority which indicates that terminating employees who cannot or will not receive their compensation electronically is discriminatory or retaliatory.

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