A direct deposit authorization form is a document employees complete to authorize their employer to deposit paychecks directly into their bank account. Instead of receiving paper checks, employees get their wages electronically transferred to their checking or savings account on payday.
Why Direct Deposit Matters
Direct deposit is standard practice for good reasons:
For employees: No lost checks, no trips to the bank, immediate access to funds on payday, works even if they're sick or on vacation.
For employers: Lower costs (no check printing), less administrative work, fewer payroll errors, reduced risk of check fraud.
According to the American Payroll Association, 94% of U.S. workers are paid via direct deposit.
What Information the Form Collects
Required Employee Information
Personal details:
- Full legal name
- Social Security number
- Address
- Employee ID number
Bank account information:
- Bank name
- Routing number (9 digits identifying the bank)
- Account number
- Account type (checking or savings)
Authorization:
- Employee signature
- Date signed
How Employees Find Banking Information
Routing and account numbers appear on personal checks:
- First 9 digits = routing number
- Next series of digits = account number
No checks? Employees can:
- Log into online banking (numbers displayed there)
- Call their bank
- Visit a branch
Critical: Employees must verify numbers are accurate. One wrong digit sends their paycheck to someone else's account.
When to Collect the Form
Collect direct deposit authorization during onboarding on the employee's first day of work along with W-4 and I-9 forms.
Processing time: Direct deposit setup typically requires one payroll cycle. Your new server hired Monday might receive her first paycheck as paper and subsequent paychecks via direct deposit.
Build this timing into your communication: "Your first check will be paper. After that, we'll deposit directly to your account."
Legal Requirements
Federal Law
No federal law requires employers to offer direct deposit. However, the Electronic Fund Transfer Act requires specific disclosures if you do.
State Laws
States vary on direct deposit rules:
Some states allow mandatory direct deposit: Employers can require all employees use direct deposit.
Some states require employee choice: Employers must offer direct deposit but cannot force employees to use it. Paper checks must remain an option.
Some states prohibit certain restrictions: Cannot require employees to use a specific bank or payroll card.
Check your state's Department of Labor for specific requirements.
Your California restaurant cannot force employees to use direct deposit. Your Texas restaurant can make it mandatory.
Security and Confidentiality
Banking information is sensitive. Protect it:
Restrict access: Only payroll personnel should see completed forms.
Secure storage: Lock paper forms in filing cabinets. Encrypt digital files.
Never email unencrypted: Don't ask employees to email banking details. Use secure portals or paper forms.
Shred old forms: When employees update banking information, securely destroy old forms after the update processes successfully.
Store direct deposit forms in employee files with other confidential payroll documents.
Updating or Changing Banks
Employees who change banks or accounts need to submit a new authorization form.
Process:
- Employee completes new form with updated information
- Submit by payroll cutoff deadline
- Implement for next payroll cycle
- Confirm first deposit to new account succeeded
- Destroy old authorization form
Timing matters: Your warehouse employee who changes banks on Thursday after payroll processed might receive one more deposit to the old account. Communicate this clearly to avoid confusion.
Common Mistakes
Not verifying account numbers: Employee transposes two digits. Their paycheck goes to the wrong account. Recovery is difficult and time-consuming.
Fix: Have employees double-check numbers before submitting. Some businesses require a voided check or bank letter to verify.
Implementing changes too quickly: Employee submits new banking info Tuesday. You process it immediately for Wednesday's payroll. The new account isn't set up yet. Payroll fails.
Fix: Allow one full payroll cycle between receiving changes and implementing them.
No backup for failed deposits: Direct deposit fails (closed account, wrong number). You have no alternate payment method ready.
Fix: Keep a process for issuing emergency paper checks when direct deposit fails.
Keeping outdated forms: Old forms with closed accounts sitting in files create confusion.
Fix: Destroy old authorization forms after successfully implementing new ones.
Not testing new setups: Process a live paycheck without testing the new account details first.
Fix: Some payroll systems allow ACH prenotification (prenote) testing (small deposits to verify account validity before the first real paycheck).
Split Deposits
Some authorization forms allow split deposits: partial payment to checking, partial to savings, or amounts to multiple accounts.
Example: Your server wants $100 per paycheck deposited to savings, remainder to checking.
This requires payroll software capable of handling splits and clear employee instructions on amounts or percentages.
What If an Employee Won't Provide Banking Information?
If your state allows mandatory direct deposit, employment can be conditional on providing banking information.
If your state requires offering paper checks as an option, employees can refuse direct deposit. You must accommodate them, even though it creates more work.
Payroll cards: Some businesses offer payroll cards (prepaid debit cards loaded with wages) as an alternative to direct deposit or paper checks. This keeps you paperless while giving employees without bank accounts an option. The Consumer Financial Protection Bureau regulates payroll cards.
Technology Solutions
Modern payroll systems allow employees to:
- Enter banking information through secure portals
- Update details themselves
- Set up split deposits
- View deposit history
This eliminates paper forms, reduces data entry errors, and empowers employees to manage their own information. Platforms like Breakroom that integrate with payroll systems streamline the entire process.
The Bottom Line
Direct deposit authorization forms collect banking information so you can pay employees electronically. Collect forms during onboarding, protect the confidential information, allow one payroll cycle for implementation, and create processes for updates and failures.
Direct deposit benefits everyone when done correctly. Get the banking details right, secure the information properly, and communicate timing clearly to avoid payroll problems.
