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Payroll - direct deposit and checks issued


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This is something I have not seen before and I am unable to find clarification for the issue.

Employer offers direct deposit or payroll check for payment of wages.  The payroll cycle is Friday through Thursday. If the employee utilizes the payroll check option, the employee receives the check on Friday.  If the employee utilizes the direct deposit option, the employee does not receive the deposit until the following Wednesday.  Is the employer legally allowed to delay the payment of wages if it is by direct deposit?  I am unable to find any information as to the legality of the method the employer uses regarding their payment system. I'm hoping someone can, at a minimum, point in the direction to be able to address this issue.

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I do payroll processing and I am not aware of any laws, rules or regulations that cover this, so yes they can. The only rule my state has in this area is that your pay periods have to remain consistent i.e., you can't play games by moving the dates around.  For example, I used to have a payroll client who had multiple Espresso Drive Thru s, who were paid on a biweekly basis, with the pay period running Sunday thru Saturday.

However the paychecks weren't issued until the second Friday after the end of the pay period which was 13 days later, which was done consistently for almost 20 years.

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The answer depends on the area the wages are being paid and the type of pay the employee receives.  For example, you may be able to pay salaried workers biweekly or bimonthly, but hourly employees might require weekly payments.  Union bargaining agreements may spell out different requirements for payments to workers.  Some government contracts require weekly payment of wages.  Sales commissions might be paid quarterly or monthly or biweekly or weekly (or weakly).

The answer is not just that simple, especially with the limited information provided.

Tom
Newark, CA (soon to be Modesto, CA)

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Thank you for your insight.

The state is Hawaii.  The employees are not covered by a bargaining unit.  All employees are in the same class, everyone is paid on a weekly basis.  Payroll is consistently paid in the manner explained.  It just seems odd that the paper checks are made available before the direct deposit.  I do realize the time lag for the direct deposit is controlled by the banking system as it requires a 2 day lead time to process the payments through their systems.  Which leads me back to the question, can the employer delay issuing your payroll if you choose the direct deposit option.

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29 minutes ago, jfreinert said:

Thank you for your insight.

The state is Hawaii.  The employees are not covered by a bargaining unit.  All employees are in the same class, everyone is paid on a weekly basis.  Payroll is consistently paid in the manner explained.  It just seems odd that the paper checks are made available before the direct deposit.  I do realize the time lag for the direct deposit is controlled by the banking system as it requires a 2 day lead time to process the payments through their systems.  Which leads me back to the question, can the employer delay issuing your payroll if you choose the direct deposit option.

Sounds to me like the company needs a more informed and capable payroll clerk.

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36 minutes ago, jfreinert said:

Thank you for your insight.

The state is Hawaii.  The employees are not covered by a bargaining unit.  All employees are in the same class, everyone is paid on a weekly basis.  Payroll is consistently paid in the manner explained.  It just seems odd that the paper checks are made available before the direct deposit.  I do realize the time lag for the direct deposit is controlled by the banking system as it requires a 2 day lead time to process the payments through their systems.  Which leads me back to the question, can the employer delay issuing your payroll if you choose the direct deposit option.

It is supposed to be paid on the designated paydate, designated in advance, and the law states that the pay must be paid within 7 days.  I suppose the employer is getting away with the earlier paper checks, legally if the designated date is the later date of the ones paid by direct deposit, or not technically legal if falling through the cracks because no employee has filed a complaint.

http://www.capitol.hawaii.gov/hrscurrent/vol07_ch0346-0398/hrs0388/HRS_0388-0002.htm

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Problem I ran into with one of my clients who was going to offer it, was that the payroll had to be processed earlier for the employees to get their paycheck direct deposited.  For example we did payroll every Friday, but for him to get his money I would have to do it Thursday.  Technically I would have to do two payroll's just to accommodate the one employee that wanted direct deposit.  It would be fine if everyone wanted it, but out of 7 he was the only one.  We chose not to offer for that very reason.

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22 hours ago, jfreinert said:

This is something I have not seen before and I am unable to find clarification for the issue.

Employer offers direct deposit or payroll check for payment of wages.  The payroll cycle is Friday through Thursday. If the employee utilizes the payroll check option, the employee receives the check on Friday.  If the employee utilizes the direct deposit option, the employee does not receive the deposit until the following Wednesday.  Is the employer legally allowed to delay the payment of wages if it is by direct deposit?  I am unable to find any information as to the legality of the method the employer uses regarding their payment system. I'm hoping someone can, at a minimum, point in the direction to be able to address this issue.

What's happening is the employer is submitting the direct deposit on Friday which usually takes 2 to 3 business days, the ideal thing to do is to process the payroll for direct deposit by Tuesday or Wednesday prior to Friday pay date. 

Since we are on the subject of direct deposit, a client of mine employee told him, if he didn't pay him via direct deposit, the bank was going to freeze his account, my client called me all scared and asked me what can we do, I told him more then likely this is a lie and have your employees' bank call me.   This was about 5 months ago and I am still waiting for them to call me.

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2 hours ago, Tax Prep by Deb said:

Problem I ran into with one of my clients who was going to offer it, was that the payroll had to be processed earlier for the employees to get their paycheck direct deposited.  For example we did payroll every Friday, but for him to get his money I would have to do it Thursday.  Technically I would have to do two payroll's just to accommodate the one employee that wanted direct deposit.  It would be fine if everyone wanted it, but out of 7 he was the only one.  We chose not to offer for that very reason.

When we switched to direct deposit, we just moved the cutoff date back from Thursday to Wednesday so direct deposit could happen on a Friday. No big deal. One pay period was just 13 days instead of 14.

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ILLMAS has probably hit it on the head. You are probably talking about bank processing time and the payroll is all completed at the same time.  The paper checks are issued on Friday and the submission to the bank is on Friday, maybe after COB. A couple of business days to process, Monday and Tuesday, and the funds are available on Wednesday.  If the pay period ends on Thursday, there is no solution to this problem.  I mean, it can stay the same, they can get paper checks on Friday or the employer can make them all do direct deposit and they will all get it on Wednesday.

Out of curiosity, is this your issue in trying to protect your client or are the employees complaining? If all is legal, I would simply counsel the employer to make the direct deposit the company method and offer the paper check as the option.  In that way, the employees can't complain (after all they take the paper check option), it is within the legal time frame to pay the employees and the employer does not have to mess with changing cutoff times. In essence, the employer does not have to change anything.

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Actually, some payroll processers have the ability to generate the ACH direct deposit information, which you  then trnamit to your own bank

to push the deposits to your employees bank accounts at the end of the same day as your paychecks are issued, in this case Friday 

Of course most banks that can do this will charge a fee for doing it. This eliminates the third party lag.

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On 8/24/2017 at 0:43 PM, ILLMAS said:

What's happening is the employer is submitting the direct deposit on Friday which usually takes 2 to 3 business days, the ideal thing to do is to process the payroll for direct deposit by Tuesday or Wednesday prior to Friday pay date. 

Since we are on the subject of direct deposit, a client of mine employee told him, if he didn't pay him via direct deposit, the bank was going to freeze his account, my client called me all scared and asked me what can we do, I told him more then likely this is a lie and have your employees' bank call me.   This was about 5 months ago and I am still waiting for them to call me.

Your client may have a loan, or mortgage from the bank, conditioned on having direct deposit.  

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If an employee has a loan or mortgage conditioned on having direct deposit it is between him and the bank not the employer.  It is not a requirement that I am aware of that an employee can dictate to his employer his method of payment.

If it sounds like I'm harsh I apologize but I have seen way to many examples where the employee starts small in his demand, oops I mean request, than demands, oops again, I mean request other things until finally the employee is calling all the shots.  Direct deposit is not free to the employer.  In the case of my client we use Quickbooks to process payroll and Intuitive request an additional $1.75 to process direct deposit.  Now times that by 10  who get paid weekly and payroll processing has gotten far more expensive than printing a check.  If I could deduct that from the employees check maybe so.  But I call almost guarantee you that the employee would be livid even at the thought of having to pay for that convenience!  At least in my clients situation!

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Someone is not doing much thinking on this.  If the employer did not offer direct deposit, then the client would have had to go to another lender.  Usually the reason for someone accepting this condition is that the bank will offer  them an incentive, like lower closing costs, or a lower rate.

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Me?  Hold the checks until the day the DD posts.  Pay before the 8th day after the period end.  Some payroll vets say the solution is to mail the checks the day the DD is sent to the bank, which makes the arrive about the same time.

Looking at what could be the HI current regs (I do not trust the reference, since HI is not always keen on keeping current online), the pay lag may be moot.  One part says within 7 days, one says within 15 days.  Having the conflicting statements could negate both.

http://www.capitol.hawaii.gov/hrscurrent/vol07_ch0346-0398/hrs0388/HRS_0388-0002.htm

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And I am also on the side of employers doing only what is required, nothing more, nothing less.  Perfect case of "no good deed goes unpunished".  Employee says please DD to for me - employer agrees.  Later, employee claims they did not get their pay, since soon to be ex spouse was faster to clean out the account.  Employer may win the case, but defense is not free.

Many employers think DD is cheaper and easier, when the opposite is true.  Not only the actual hard costs of processing, but the time to setup, admin, and audit another pay method...  The one case where it makes sense (to me) is if the employer self prepares payroll, and is in a local where they can require all to DD.  This gives the employer the ability to prepare and pay off site, removing the need for a system to create and distribute on site.  Huge value to the employer to be able to handle business from the beach!

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A loan stipulation based on having DD sounds like a payday loan shark who sets up an auto withdrawal.  Agreed, none of the employer's concern.  Falls in line with the employees who ask for proof of wages and future employment (beyond a tax return signed under penalty of perjury) as a means for the lender to hook the employer in the liability chain.  Lenders will often offer a lower rate for auto payment - I personally have not seen one based on how I get money in my accounts.

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In my area, several local banks will waive monthly service charges and account minimums on checking accounts provided you have at least one direct deposit.  This might be why the employee wants direct deposit.  Or maybe she finds it inconvenient to go to the bank.  Who knows?  I figure the employee is allowed to ask for anything, and the employer is allowed to say no, unless it is required by statute.

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