PAYROLL FAQ’s

What laws govern how often an employer must pay its employees?  

State laws govern how often employers must pay employees.

What are some advantages and disadvantages of direct deposit for an employer?

Advantages of direct deposits for an employer include:

Prevents lost and stolen checks.

Employees do not have to take the time out of their work day to cash or deposit their paychecks.

Disadvantages of direct deposit for an employer include:

Direct deposit is not a paperless system, since employers still may have to provide employees with a written statement of hours worked and deduction from gross pay.

          Direct deposits cannot be made mandatory in most states.

Employers cannot dictate the financial Institution that the employee uses in most states.

Employer’s loss of interest on payroll funds before paychecks clear.

What laws cover unclaimed paychecks, and what is generally required of employers?

State escheat laws govern the treatment of unclaimed paychecks. Under these laws, employers are generally required to:

Try to locate and contact the employee.

File an annual report with state that includes the employee’s name, last-know address, amount of check, and related payday.

Hold the checks for a certain length of time before turning then over to the state as abandoned property.

Explain the process of pre-notification under the Automatic Clearing House System.

Pre-notification involves sending zero dollars amounts through the ACH network as a test before the first actual direct deposit for an employee. If such a pre-note is used it must be sent at least 6 business days before any actual pay is sent through the network. This is a test for accuracy of the information in the authorization agreement (direct deposit form).

Many Critics claim that direct deposit is not paperless. Explain Why?

Authorization agreements (where they are in paper form) still must be signed and checked for accuracy, and employees using direct deposit must be given statements on payday showing the compensation they earned and the deductions taken for the pay period. Some employers do use electronic pay statements in meeting requirement.

What are some of the problems that may arise when periodic pay is reduced as a result of an extra pay period caused by the calendar?

The main problem is whether the recomputed weekly or biweekly paychecks for exempt salaried employees who are earning a certain amount annually. Employers are free to reduce exempt salaried employees pay when faced with an extra pay period, so long as there is on contract guaranteeing a certain amount each weekly or bi-weekly pay period and the employee’s pay is not reduced below minimum required by state or federal laws. Employers may also face a hostile reaction from salaried employees whose pay is reduced in this matter.

Name the states that do not allow compulsory direct deposit.

New York, New Jersey, Florida, Georgia, Iowa, Kansas, Oregon, West Virginia, Arizona, California, Indiana, Illinois

Name the states that prohibit employers from requiring employees to pay added fees to participate in direct deposit program.

Kentucky, Kansas, Arizona, Idaho, Illinois, New York, Nevada, Washington, Maine, Maryland

What are the steps involved in establishing an electronic fund transfer?

The following are the steps involved in establishing an electronic funds transfer:

1.    The employee must give authorization for direct deposit by designating the financial institution(s) to which the employee’s pay will be transferred, the type of account to which the pay will be transferred, the number of the account, and the financial institution’s routing number.

2.    The employer prepares an automated file of direct deposit records which is sent to a financial institution with the ability to process the file, known as the Originating Depository Financial Institution (ODFI).

3.    The ODFI processes the file through the Automated Clearing House (ACH) operator.

4.    The ACH operator processes electronic payments between the ODFI and the financial institutions designated by the employees to receive the payments and coordinated the financial settlement between the participating financial institutions.

5.    The Receiving Depository Financial Institutions (RDFI) designated by the employers accept the electronic payments and post them to their customers’ (the employees’) accounts.

6.    On payday, the employees receive an information statement containing the same data that would have been shown on the pay stub, had the employee been paid by check.

What are the disadvantages of paying employees by paycheck as far as the employer is concerned:

Lost or stolen checks.

Unclaimed or un-cashed checks.

Employee time off needed to cash checks.

Early preparation of vacation checks.

Reconciliation of bank account with outstanding checks.