A Summary of Employers’ Payment Required
Generally, employers are required by federal law and most state laws to pay employees on their regularly scheduled payday. Failure to do so may result in significant penalties to the employer, in addition to claims of unpaid wages.
Under the Federal Labor Standards Act ("FLSA"), employers are required to pay employees on at least a bi-weekly basis. Smaller employers are permitted to pay employees annually, semi-monthly or monthly. The Fair Labor Standards Act "(FLSA"), issued by the United States Department of Labor, Qualification for Exemption, Section 541.602(a). The FLSA allows states to enact laws which require payment to employees of "wages on a more frequent basis than is required by the [FLSA] . " The Wage and Hour Division of the U.S. Department of Labor, Fact Sheet #25, Employee "Payday" Requirements under the Fair Labor Standards Act, An Employer’s Guide. However, the FLSA does not provide for penalties when an employee is not paid on the appropriate schedule; therefore, each state varies in its penalty provisions for violation of the law regarding payment to employees. Some states’ laws include provisions for mandatory treble damages for non-payment, as well as statutory damages and attorneys’ fees. See, e.g., New York Wage Theft Act, Sen.2659B, Section P, effective April 9, 2011; California Labor Code Section 203. Other states such as Pennsylvania and Texas have no mandatory penalties for non-payment of wages at all.
The Legal Impact of Paying Employees Late
Beyond the ethical and practical considerations of not paying employees timely, there are a number of significant legal penalties and consequences potential for companies that fail to pay employees on time. In California, for example, an employer will be on the hook for the full amount of unpaid wages if it:
As you can imagine, the penalties for the above violations can be substantial, easily exceeding the amount of wages at stake. Even more costly is the litigation and liquidated damages employers may face if a single employee opts to file a class action lawsuit or representative action (on behalf of aggrieved employees such as by asserting California’s Private Attorney General Act). With respect to unpaid wages, this could easily lead to a judgment in the millions even when the initial amount of wages at stake is only a small fraction of this amount.
Employers who fail to pay employees timely expose themselves to a large range of potential sanctions including a requirement to pay:
Effects on Employees’ Rights
Employers must recognize that in addition to avoiding compensation issues and the statutory penalties associated with "waiting time" violations, they also must consider the impact that the late payment of wages may have not only upon the employee who has not been paid on time, but on other employees, coworkers, and other potential plaintiff-employees. A reasonable worker is entitled to expect timely payment of wages and therefore views late payment as a wrongful act committed by the employer.
A late paycheck also contributes to a general atmosphere of frustration, anger, and distrust within the workplace. Such feedback contributes to and feeds the proverbial "Apple Core of Dissatisfaction" that is a breeding ground for subsequent employment litigation. Those who don’t receive their paycheck on time will tell others about it. They may even complain about it to the DLI, which can and will give them greater credence and stature in the eyes of others: I wasn’t paid on time and you should complain, too. Social media can be an equally damaging outlet for workplace complaints. An irate employee who posted negative comments about his employer on a social network or blog would only perpetuate the cycle of ill feelings.
These reactions not only affect the individual who has been forced to pay rent or make car payments late. Discontent that results from the unpaid wages of one employee often spills over to others. This is especially true for the comrades in arms, those in the same vicinity or work area of the affected employee. Such reactions from co-workers can be bolstered by the announcement on the company bulletin board about upcoming taxes being due, a corporate Headquarters directive to work to 7:00 p.m. on Tuesday, and the like. Late payment of wages can have the effect of discouraging workers from performing at the level demanded by the employer and can cause them to resist working later hours or on weekends. Productivity is lost as soon as an employee discovers that his or her wage has not been timely paid. The displeasure an employee feels toward an employer who has failed to pay wages on time leads to costs for the employer in the form of low morale, loss of productivity, complaints from the State Labor Commissioner, and litigation.
State Laws for Late Payments
Employers should also be mindful that many states have their own specific requirements for wage payment on top of the federal labor regulations. In many cases, the state rules are stricter than those of the federal laws, and in others they can differ widely in their wording. Employers can face varying levels of damages depending on the individual state’s laws, and in some cases, large penalties.
For example, Massachusetts General Laws Chapter 149 section 148 requires an employer to pay employees who are paid on a "weekly basis" at least once in every period of two weeks and that all other employees at least semi-monthly. The statute specifically defines "paid weekly" as all businesses "engaged in…manufacturing, mechanical or mill work or engineering or craft work" or "any business whose total annual sales or receipts of the business equals or exceeds $500,000 . " Violators are subject to twice damages in addition to attorneys’ fees.
California law is similar. The California Labor Code requires that wages "earned" by employees not exempt from PC 204 be paid twice a month in accordance with a regular schedule. PC 223 requires that an employer pay fired employees "all wages due at the time of discharge." PC 227 provides for several types of penalties for those employers that violate the law, including a waiting time penalty for the late payment of all wages due.
Other states have similar statutes, and failings to pay in compliance can leave an employer liable for steep penalties.
What Employees Can Do if Paid Late
When payment is late, employees have several options available to them. It may be possible to file a "wage theft" complaint with the New York State Department of Labor or the New York City Department of Consumer Affairs for investigation and follow-up. Employees can also pursue judicial remedies to recover lost wages.
If an employee is unable to rectify the situation through consultation with the employer, the employee should consider sending a letter requesting damages. The employee should inform the employer that he or she has not been paid in a timely manner, explain why the claim is being made, and state that the employee will speak with an attorney if necessary. An attorney letter may help the employee recover damages or may even be a good way to begin a conversation with the employer about strictly adhering to the law. The existence of a valid claim, however, will not often prevent an employer from delaying payment. Further, the employee will need to take action to enforce the claim. The employee should consider contacting an experienced employment attorney to assist with pursuing recovery of damages. If an employee is seeking punitive and/or liquidated damages, the employee should keep in mind certain deadlines for bringing these types of claims. An employee will typically only have two years to file suit in court for a claim to recover damages for unpaid overtime, while an employee may have as many as three years to file suit in cases where damages are not paid timely. However, if the employee has made the required policy complaints or has requested compensation at a higher level, the deadline will be extended to six months from the date the employer responds to the complaint or complaint request, not to exceed three years from the date the damages were due. In that case, an employee may have a longer period of time to file suit. Otherwise, the employee will generally be bound by the two- or three-year time limit. Given those time limits, if an employee believes he or she is owed overtime or late payment damages, the employee should pay close attention to those time limits to ensure timely filing of any complaint or lawsuit and/or that he or she does not lose the right to receive any owed payment.
What Employers Can Do to Avoid Late Payments
Employers can avoid late employee payments through various best practices. The first step in this process involves making employee payments easier and efficient for employers. By using a payroll management system, employers can streamline employee payments and ensure timely payment. Payroll management systems come in many different forms and systems. However, all payroll systems will provide for a more manageable payroll process.
For example, some payroll management systems calculate payroll, maintain payroll records, file payroll related taxes and assist with reporting and forecasting payroll information. In all likelihood, payroll systems will facilitate timely payments. Furthermore, payroll management systems will eventually save employers time and resources, while at the same time allowing employers to maintain accurate payroll records and reporting to avoid future liabilities .
It is also important for employers to conduct regular audits of their payroll systems to ensure these systems are operating in accordance with the governing laws. A company that is consistently late with its payments to employees should log its payment history and analyze any patterns. These patterns may uncover the causes and help inform better practices going forward.
Most employers have claimed they had expectations that payments were going to be successful, but fell victim to the postal service. To combat this problem, now more than ever, employers should consider adopting electronic payment methods for employees. The use of an electronic payroll service should reduce the risk of lost payments, while also providing employers with the ability to maintain existing payroll relationships for employees who prefer being paid by check.