The Legal Consequences of Not Paying Your Employees On Time

Payroll compliance is a new topic we’ve been exploring on the blog, and this week, we’re talking about the legal repercussions of not paying your employees on time. As an employer, it is your responsibility to adhere to a regular pay schedule that is in accordance with state regulations. Failure to do so could result in costly litigation, penalties, fines, and a permanently soured employee-employer relationship.

Read on to learn what to expect:

Employee rights

Your employees have a right to a timely paycheck according to state payday requirements that govern pay frequency. In the case of a missed or late paycheck, your state has its own procedure for what to do.

“In California, when an employee does not receive his or her pay on the regularly scheduled payday, the employee may file a claim against the employer with the California Department of Labor Standards Enforcement, also known as the California Labor Commissioner,” says Angela J. Reddock-Wright, a Mediator and Managing Attorney of the Reddock Law Group of Los Angeles, an employment and labor law firm based in Los Angeles, CA.

Continues Reddock-Wright, “The Labor Commissioner’s office has claims representative who are on hand to assist the employee in filing her or his complaint and clarifying the areas of potential liability for the employer.”

Many states (like California) handle wage claims for free, according to Elizabeth Unrath, a Labor & Employment Law Attorney with the Los Angeles-based Der-Parseghian Law Group. Employees can also attempt to recover their wages by filing a claim in small claims court. However, for larger cases, employees may find it worthwhile to hire a labor attorney and file a lawsuit. Employees can determine their state’s procedure by reaching out to their local labor department for clarification.

Once legal action is taken

According to Micah Longo, a Labor & Employment Law Attorney in South Florida, if you fail to pay wages, the employee is entitled to the number of unpaid wages, plus liquidated damages (double the unpaid wage), plus attorney fees and costs under the FLSA.

“I was once involved in a case where the amount in controversy was low (less than $5,000); the case was tried and the worker ultimately won at trial,” says Longo. “The attorney’s fees in the case were over $75,000. So, what could have been resolved for under $5,000 turned into an $80,000 plus liability to the employer.”

“Most states such as New York also hold certain officers and shareholders personally liable for non-payment or delayed payment of wages,” according to M. Salman Ravala, Esq., an attorney practicing law in New York. Says Ravala, not only would legal action results in fines from both the state and federal government, but damages could double or triple if delay in payment is found to be willful, intentional, or fraudulent.

How to prevent this from happening

“In a situation where employer finds that it is not able to timely pay wages or other required wages, the employer should examine its business model to determine if it needs to take steps to restructure, to reduce employee hours, or to take other steps to limit its exposure to potential wage and hour claims,” says Reddock-Wright.

Says Longo, if your employee has provided notice of intent to file an unpaid wage claim, legally you cannot take adverse employment action against a worker (like firing them) for that reason.

If it’s your first time delaying pay, be proactive. Explain to your employees a) why this has happened b) when they will be compensated and c) your action plan for ensuring this never happens again.

Your duty to keep time records

The technicalities matter. The general rule is that compensation earned in a particular workweek must be paid on the regular payday for the period in which the workweek ends, says Longo. Should you go to court, it is essential that you provide time records to avoid factual disputes.

“Under FLSA a worker can meet their burden of proof by their own testimony confirming the hours they work,” according to Longo. “In the absence of time records by the employer, inexact or approximate evidence is sufficient for the worker to meet their burden as a matter of just and reasonable inference. As you can imagine, sometimes workers exaggerate their work hours, especially when the employer can’t refute their testimony with time records.”

If you ever have trouble making payroll, operating with integrity and accountability can help you and your employees navigate through choppy waters. When all else fails, investing in an automated time and attendance system will alleviate the burden of having to provide records should your work operations ever be disputed.

FingerCheck is an automated cloud-based time tracking solution used to track, review and manage time and attendance data. It now offers payroll and workers comp insurance with the enhanced solution, FingerCheck360.