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Suppose, for example, an employer in the United States deposits employees' paychecks directly into their bank accounts. If they determine (whether correctly or incorrectly) that a former employee was paid more than they should have been due to a payroll error, is there any (legal) mechanism by which they could take the alleged excess pay out of the former employee's bank account without the former employee's consent?

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    This is probably a question for law.SE not money.SE. There are plenty of mechanisms by which they could take money (anyone with access to ACH who knows your routing and account number has the mechanism to take money) so the interesting part of the question is whether it's legal. – R.. Jul 2 '18 at 21:27
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    @R.. The legality will largely depend on the agreement/contract that the OP signed to authorize the direct deposit. Thus, we'd need access to that agreement to be able to determine what has actually been agreed to. – Makyen Jul 2 '18 at 21:32
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    FWIW I worked with someone who maintained two bank accounts, and transferred their paycheck from the Direct Deposit account to the other account immediately on payday, exactly because they didn't trust the company's ability to withdraw as granted by the Direct Deposit agreement. This was a company that required Direct Deposit. – gowenfawr Jul 3 '18 at 13:52
  • @R: Out of curiosity, what would those mechanisms include other than ACH? – Unknown Shoulder Jul 6 '18 at 19:34
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Usually, when you sign up for direct deposit you have to sign a form giving your consent. This contains a clause which allows the company to make withdrawals up to the paycheck amount, in order to correct any errors.

In short, if you signed up for direct deposit then you have already given your consent for them to fix errors by withdrawing money.

If you do not consent (and therefore do not get direct deposit), they will usually require you to write a check to the company for the difference.

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    There is a small window of time (i believe a few days) for them to reverse a deposit. – mhoran_psprep Jul 2 '18 at 18:55
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Note that many large companies don't offer any other payment methods, so you are bound to use direct deposit (or work for free or get another job).

I have never signed anything, and from the people in HR I know they would never do that (taking money back). If you owe them a correction, they (snail-)mail you about it, and give you thirty days or more to correct it. The assumption is that the moment money gets into your account, you trusted it's yours and spent it immediately.

Update: after some googling, it seems that such forms typically/often(?) do authorize 'appropriate corrections/debits'. See for example this Intuit template that comes with Quicken: https://http-download.intuit.com/http.intuit/CMO/payroll/support/PDFs/Misc/DD_Form.pdf.

Second update: many states have laws that allow the employer to enforce direct deposit. See for example https://www.patriotsoftware.com/payroll/training/blog/can-employers-make-direct-deposit-mandatory/ for a map (scroll down one page). Overall, 82% of all employees use direct deposit.

  • I would comment that this general rule about not taking money back may not apply in the case of very large mistakes. If your paycheck is normally $2500 and they deposit $80,000, you can pretty much be sure they will be taking it back pronto and not waiting for you to decide to pay it back over the next 30 days. And spending this money could be considered a crime by itself, since you would have had reasonable reason to believe it was in error. – ErikE Jul 3 '18 at 1:20
  • HR wouldn't make this call, accounting would. You better believe the accountants will want that money back. – quid Jul 3 '18 at 6:16
  • Where do you live that large companies don't offer any other payment methods? In the US, while direct deposit is vastly preferred, companies will still cut paper paychecks for those not enrolled. – Doktor J Jul 3 '18 at 14:33
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    @DoktorJ The US Federal Government requires direct deposit by law for both salary and Social Security payments. Many companies in the US, particularly those with large numbers of lower-wage employees (retail, construction) do require direct deposit or else they will issue a payroll card. – user71659 Jul 3 '18 at 17:29
  • @user71659 Good call, most places are switching to EBT cards for those not on direct deposit. Regardless, while functionally similar, it's not actually the same as direct deposit (namely, they don't have access to your bank account details, which is salient to the question at hand). – Doktor J Jul 4 '18 at 5:00
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It depends on the clause of the Direct Deposit agreement.

Some Direct Deposit agreements include a clause including permission to make withdrawals, the actionary phrase may be as simple as 'I permit {organisation} to deposit and withdraw on my account'.

If there is no withdrawal authorization provided, such things as correcting overpayments or incorrect deposits are handled through normal banking procedures.

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Personal: A company I had worked for erroneously posted two checks to my direct deposit. They was also a debit in my account of correction. So I can not say if it is a withdrawal per say or more of a reversing an electronic money transfer.

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While the company may be able to take money back from your account, they still have to pay your salary. For example if the company decided to lower their salary, they have no right to do that and take their money back from your account.

In an extreme case, if the company was going bankrupt and decided to take money from your account to pay someone else, I believe law.stackexchange.com would tell you they are in trouble.

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