Credit or Debit: Weighing the Options between Digital Transactions and Old-Fashioned Checks
When it comes to payroll, the rules vary significantly from one U.S. state to another. There is no federal mandate that dictates specific pay periods, leaving states to set their own rules regarding pay frequency and deadlines.
State-specific Payroll Regulations
Let's take a look at some key examples:
- In Indiana, employers must pay employees at least semi-monthly (twice per month) or more frequently, with wages paid within 10 days after the end of the pay period. Employers must honour employee requests for bi-weekly pay.
- Washington requires employers to pay employees at least once per month on a regular schedule. Employers can demand direct deposit enrolment and payment is generally only required for actual hours worked.
- California (Los Angeles County) is set to introduce a Fair Work Week Ordinance for large retailers and grocers starting July 1, 2025. This mandates predictable schedules and pay for schedule changes, but it does not directly regulate payroll frequency.
Payment Methods
Typically, states allow payment by check, direct deposit, or other legal methods. Employers may require direct deposit where allowed (as in Washington).
Pay cards, similar to debit cards, have become a popular alternative. They offer instant access to wages and have extra security measures like PINs. However, they come with upfront fees for the company and the risk of losing or stealing the physical card.
Paper checks, the traditional method for distributing wages for decades, don't require a bank account. Employees can receive cash at a check-cashing service for a fee. Some employees may view paper checks as secure since they don't require providing the company with bank account information.
Considerations for Small Business Owners
Payroll is a significant concern for small business owners with employees. Generating physical checks is an added expense for the company, and an outside payroll service may charge more for physical checks. On the other hand, direct deposit can take 1-3 days for the money to be available, and bank holidays can affect processing time.
If employees are out of the office on payday, they may not receive their check until days after payday. Employees must adhere to bank hours and cutoff times for immediate availability with paper checks. If a check is lost or stolen, there's a risk that the company's bank account information may not be secure.
Direct deposit isn't possible for employees without a bank account or who don't want to share that information with the company. Pay cards can be beneficial for employees without bank accounts, as they provide access to wages without requiring cashing or depositing a check.
In conclusion, understanding state-specific payroll regulations and the various payment methods available is crucial for both employers and employees. It is advisable to consult specific state labor regulations to ensure compliance with pay frequency, payday deadlines, payment methods, and any local ordinances.
- Adhering to state-specific payroll regulations is essential for compliance, as federal regulations do not dictate specific pay periods in the U.S., allowing states to set their own rules for pay frequency and deadlines.
- In Indiana, employers must pay wages at least semi-monthly (twice per month) or more frequently, pay within 10 days after the end of the pay period, and honor requests for bi-weekly payment.
- Washington state requires employers to pay employees at least once per month on a regular schedule and allows direct deposit enrolment, and payments are usually required only for actual hours worked.
- California, especially in Los Angeles County, plans to introduce a Fair Work Week Ordinance for large retailers and grocers starting July 1, 2025, mandating predictable schedules and pay for schedule changes but not directly regulating payroll frequency.
- Typically, states allow payment methods such as checks, direct deposit, or other legal payment methods, with employers being allowed to require direct deposit where permitted (as in Washington).
- Pay cards, resembling debit cards, provide instant access to wages and have extra security measures like PINs but come with upfront fees for the company and the risk of losing or stealing the physical card.
- Paper checks, the traditional method for distributing wages, don't require a bank account, but charging a fee for cashing checks through check-cashing services, and there's a security risk when providing the company with bank account information.
- Small business owners should consider the expenses of generating physical checks and the delays associated with direct deposit, as well as the problems with access and security related to those payment methods.
- Employees who are out of the office on payday or have issues with bank hours and cutoff times for immediate availability with paper checks may face delays in receiving their payments.
- Direct deposit might not be possible for employees without bank accounts or those who prefer not to share their bank account information, making pay cards a beneficial option for those individuals.
- Understanding the various payment methods and state-specific payroll regulations is essential for both employers and employees to ensure compliance with pay frequency, payday deadlines, payment methods, and local ordinances.
- Employing self-service tools, cloud-based technology, and onboarding forms can streamline payroll processes, improve security, and enhance engagement and resources for employees.
- Integrating analytics, time tracking, alerts, compliance, and payroll management can provide enhanced oversight, make personalized assessments, reduce errors, and improve overall finance and business management.
