This article was updated on Aug. 23, 2018.
While the payment of wages may seem like a simple concept, wage and hour issues can be challenging, no matter how frequently you deal with them. Perhaps it is because the payment of wages includes everything from paying an employee the proper rate for overtime hours worked, to employee classifications, to whether you need to pay an employee who is traveling for work and is stuck in the airport during a snow storm. Indeed, when it comes to payment of wages, employers often have questions around requirements pertaining to pay frequency and notifications of change, whether they can require employees to receive wages via direct deposit instead of physical check, and whether accrued but unused vacation must be paid out on termination.
Q: How often must I pay my employees?
A: Federal law does not regulate how often you must pay employees but, several states do. In some states, employers must pay employees weekly or at least twice every month, while other states permit employers to pay employees less frequently. Indeed, there are also some industry-specific regulations with regard to how frequently employees must be paid. Regardless of the frequency with which employees must be paid, it is important to establish regular paydays in advance and clearly communicate them to your employees.
Q: Can I require employees to receive their pay via direct deposit?
A: Whether you can require employees to receive their pay via direct deposit depends on the state in which you operate. Many states prohibit employers from forcing employees to receive their pay through alternative means (e.g., direct deposit or payroll debit card). In these states (Connecticut), employees must voluntarily authorize direct deposit or other forms of alternative payment. In the absence of state restrictions, federal law permits employers to require employees to receive their pay via direct deposit as long as the employee is free to choose the financial institution to which the funds will be deposited. Note that it is important to obtain and retain written authorization from employees for direct deposit.
Q: When should I pay my employees if a payday falls on a holiday?
A: If a scheduled payday falls on a holiday, some states require payment on the preceding
business day. Absent such a requirement, employers generally have the option of paying employees on the day before or after the holiday. Before the start of the calendar year, employers should establish their paydays for the year taking into account their holiday schedule.
Q: An employee is absent on a payday and wants me to give his paycheck to a friend. Is this allowed?
A: There is generally no law against an employer from giving an employee's pay to a friend, if authorized by the employee. It is not, however, a best practice to do so. However, if you decide to allow another individual to pick up an employee's paycheck, it is important to first obtain the employee's written permission and then have the person who picks up the paycheck acknowledge receipt of the employee's pay.
Q: A non-exempt employee forgot to record her hours on her timesheet. Am I required to pay her?
A: Yes, under the Fair Labor Standards Act (FLSA) and many state laws, an employer must pay the employee for all hours worked on the next regularly scheduled payday, regardless of whether the employee adhered to the company's timekeeping procedures. If an employee fails to submit or sign a timesheet, ask the employee and his or her supervisor to immediately provide you with the hours worked and make sure the employee is paid accordingly.
Q: Do I have to provide a departing employee with his or her final paycheck on his last day of work even if it's not a normal pay day?
A: Under federal law, a departing employee's final paycheck must generally be provided by the next regular payday, but many states have implemented shorter timeframes for providing final pay. At the state level, final pay deadlines generally depend on whether the employee initiates the separation or the employer does.
Example: California requires that an involuntarily terminated employee's final pay be provided at the time of termination. If an employee resigns and gives less than 72 hours of notice, the employee's final pay must be provided within 72 hours of leaving. If the employee gives at least 72 hours of notice that he or she is resigning, final pay is due on the employee's last day.
Q: Do I have to include employees' accrued but unused vacation in their final paycheck?
A: Generally, there is no federal requirement that mandates employers pay separating employees for accrued but unused paid time off. However, many states regulate vacation payouts. State laws generally address the issue in one of the following ways:
- Employers must pay employees for unused vacation at the time of termination;
- Employers must pay employees for unused vacation unless they have a policy that states that vacation won't be paid out at termination; or
- Employers must pay employees for unused vacation at termination only if the employer has promised to do so.
Note: Employers in California who chose to create one all-inclusive PTO policy (providing paid sick time off in accordance with California's paid sick time law), rather than having a sick leave policy separate from a PTO policy, will be required to pay out all accrued but unused PTO.
Q: An employee who resigned hasn't returned company equipment, can I deduct the cost from their final paycheck?
A: This is an area where employers should use extreme caution. Under federal law, this may be permissible as long as certain rules are followed.If the employee is classified as exempt under the Fair Labor Standards Act (FLSA), this type of deduction is prohibited. For non-exempt employees (also known as hourly employees), such a deduction would be permitted only if it does not reduce pay below the highest applicable minimum wage (federal, state, or local) and doesn't reduce any overtime pay due. Employers are generally required to obtain an employee's consent before they subject the employee to a permissible deduction. The agreement must be specific concerning the particular items for which deductions will be made and the employee must know how the amount of the deductions will be determined. While this may be done verbally, it's recommended that you obtain written acknowledgment.
Note: Your state law may further limit your ability to deduct for the cost of unreturned property, even with a written agreement between you and the employee and even if doing so does not bring the employee's pay below the minimum wage. Check your state law and consult with legal counsel to ensure compliance.