The Employee Pay Workshop: Compliance Advice for 2014 Alice Gilman Esq. alice.gilman@gmail.com
AGENDA How to pay employees When to pay employees Wage theft laws Accruals and deductions from pay Termination pay
How to Pay Employees Methods of payment FLSA requires only prompt payment, not how employees are paid State laws control how employees are paid Cash Checks Remote Deposit Capture Security risks, including potential for fraud and identity theft Operational risks, including forged amounts or endorsements, employees forgetting to dispose of their paper checks, fuzzy pictures, lax data security
How to Pay Employees Methods of payment Direct deposit States that allow mandatory direct deposit Iowa New York Indiana Oklahoma Kansas Oregon Kentucky Tennessee Louisiana Texas Michigan Utah Minnesota Washington North Carolina Wisconsin
How to Pay Employees Methods of payment Tips for encouraging direct deposit Include authorization form in new-hire intake packet Pre-note Discuss with employees who will be away on payday Offer split deposits Deposits can never be lost or stolen Green alternative to paper checks Traps with direct deposit Don t use deposit slips Check employees surnames match (newly-weds, divorcees) Reversal rules
How to Pay Employees Methods of payment Paycards Class action lawsuit seeks to hold employer liable for fees associated with paycards CFPB on Regulation E Required disclosures Access to account history Limited liability for unauthorized transfers Error resolution rights
How to Pay Employees Methods of payment State Laws on Voluntary Paycard Use: California Montana Vermont Colorado Nevada West Virginia Connecticut New Hampshire Delaware New Jersey Florida New York Illinois North Dakota Iowa Oklahoma Maine Oregon Maryland Texas Minnesota Utah
How to Pay Employees Methods of payment State Laws on Mandatory Paycard Use: Arizona Kansas Michigan North Carolina Tennessee Virginia
How to Pay Employees Methods of payment Tips for Paycard use Cancel mandatory paycard programs unless you re located in states that allow it Reach out to new hires and personally explain the paycard process to them and their other choices Ensure that employees understand that they may access their entire net pay fee-free Ensure that employees can opt out of the paycard program and that those who do so won t be penalized or retaliated against Offer a paycard that s backed up by a reputable card issuer Ensure that employees receive mandatory disclosures and that they understand them
How to Pay Employees Methods of payment State legislation Possible bans on paycards: Pennsylvania Enacted legislation: Hawaii, Nebraska Employee choice: Ohio Other legislation: Arizona Illinois Minnesota Missouri New Hampshire New Jersey Virginia Washington Wisconsin
When to Pay Employees State payday laws Pay on pre-designated days Always be consistent Check state laws for mandatory pay periods Watch holidays Use the lag, if possible Lags allow off-cycle pay items, such as overtime, to be calculated properly Correcting pay mistakes FLSA: One pay period to figure overtime, if necessary applies to corrections; states may require speedier resolution Safe harbor for exempts for inadvertent mistakes
Wage Theft Laws Amendments to state payday laws Notices must be provided by every Feb. 1; obtain employees signed and dated acknowledgments Notices must be provided in employees primary language Employees must receive notice of any changes at least seven calendar days prior to the change, unless the changes are reflected on employees pay statements Notices must disclose the following information the rate of pay, the overtime rate, and the basis upon which wages are paid allowances claimed as part of the minimum wage dates of work covered by the wage payment the employer s name, including any d/b/a name the physical address and phone number of the employer s main office for non-exempts: hourly pay rate and overtime hours worked
Wage Theft Laws Amendments to state unemployment laws Fights employers that misclassify employees as independent contractors by presuming an employee-employer relationship exists Rebut this presumption with the following documentation: Written contracts, including an acknowledgement that independent contractors comply with all applicable laws Signed affidavits in which contractors attest that they re available to work for other parties Certificates of status provided by state/local government entities Proof that the independent contractor holds all occupational licenses
Accruals and Deductions from Pay Vacation accruals Company vacation accrual policies Determine who can participate in the plan Set accrual rates o Accruals increase with years of service o Benchmark against similar businesses o Small businesses may need to be more generous Determine when employees can and can t use their vacation time Decide what to do about employees who have vacation time left at the end of the year o Alternatives: forfeiture, rollover, rollover with cash out Decide whether employees can borrow time
Accruals and Deductions from Pay Sick time accruals Same basic considerations as vacation policies Accrual rates can vary from vacation accruals Borrowing sick time may be more prevalent Notable policy exception: FMLA leave States/municipalities requiring paid or unpaid sick leave: Connecticut Portland, OR District of Columbia San Francisco, CA Jersey City, NJ Seattle, WA Newark, NJ San Diego, CA (eff. 1-1-15) New York City, NY Coming soon: Eugene, OR
Accruals and Deductions from Pay Paid time off (PTO) banks Lumps all of employees time off together and places it in a bank Only one accrual rate needs to be set per employee per year Same basic considerations as vacation pay policies Decide what to do about employees who have vacation time left at the end of the year
Accruals and Deductions from Pay Deductions from pay Involuntary deductions Taxes Garnishments Child support orders Federal tax levies Tax levies from state/local jurisdictions Bankruptcy orders Administrative garnishments Student loan garnishments Creditor garnishments
Accruals and Deductions from Pay Deductions from pay Checklist for handling garnishment orders Determine whether the garnishment order is valid Inform the employee Determine whether there are any exemptions to the garnishment order Calculate how the garnishment will affect the employee s pay, and inform the employee Determine the limits that apply to the garnishment order Audit every garnishment before every pay period to track limits Don t hard code any limits into the payroll system Determine how the garnishment order will affect other deductions and withholding under other garnishment orders Review garnishment order with the company s legal counsel
Accruals and Deductions from Pay Deductions from pay Voluntary deductions C Pre-tax deductions Health insurance Dependent care Transportation fringes 401(k) or 403(b) plan Voluntary deductions C After tax deductions FLSA: Deductions are OK, if they don t leave employees with less than the minimum wage or cut into their overtime pay; no loss-related deductions from exempts pay State payday laws can be general or specific Always get employees authorizations for voluntary deductions in writing
Accruals and Deductions from Pay Deductions from pay Checklist for handling loss-related pay deductions The law of the state or locality in which you do business allows lossrelated deductions to be taken from employees pay Company policy specifically allows loss-related deductions There is an express or implied agreement between you and employees that specific loss-related deductions will be taken before employees perform work that becomes the subject of deductions Employees affirmatively consent to the policy You have proof of employees assent to the policy Employees understand how loss-related deductions will be calculated Employees are left with at least the minimum wage after loss-related deductions are taken Employees regular rates of pay are determined before loss-related deductions are taken and they receive all of their overtime pay
Accruals and Deductions from Pay Wage disputes Pay what you know the employee Dispute the remainder Have proof of the company policy authorizing the deduction Employee should acknowledge receiving the property Have proof of the fair market value of the item Have proof of the damage and repair cost
Termination Pay Involuntary terminations Most final pay is paid by check, not direct deposit or paycard State laws requiring immediate payment of final wages: California Massachusetts Colorado Minnesota Hawaii Missouri Illinois Montana Massachusetts Nevada State laws requiring payment the next business day: Connecticut Rhode Island District of Columbia Utah Oregon Wisconsin
Termination Pay Involuntary terminations Remaining state laws on final pay: Alaska: within 3 working days Arkansas: within 7 days Arizona: earlier of next payday or 7 working days Idaho: Earliest of next payday, 10 days, or within 48 hours of employee s written request Kentucky: Later of next payday or 14 days Louisiana: Earlier of next payday or 15 days Maine: Earlier of next payday or 2 weeks after demand Michigan: As soon as amount can be determined Nebraska: Earlier of next payday or 2 weeks
Termination Pay Involuntary terminations (continued) New Hampshire: Within 72 hours New Mexico: Within 5 days; 10 days for employees paid by commission or by the piece South Carolina: Within 48 hours or next payday, not to exceed 30 days South Dakota: Next payday, or as soon as employee returns company property Tennessee: Later of next payday or 21 days Texas: Within 6 days Vermont: Within 72 hours Wisconsin: Next payday West Virginia: Earlier of next payday or 4 days Wyoming: Within 5 days
Termination Pay Troubleshooting involuntary terminations Always apply the most stringent state law, which means to pay immediately o If it looks like there s any wiggle room, be conservative Don t agree with the employee to pay at the next payday Create a spreadsheet of company policy and state laws Ensure that the Payroll department is notified of the involuntary termination timeline o Flag words in all e-mails by filtering on the word termination o Ask IT or HR for help in setting up the filters Have a noncompliance strategy o Suspend the employee with pay o Create a termination checklist
Termination Pay Voluntary terminations Most states require payment by the next regular payday States with other requirements: Alaska: Payment by the next payday that s at least 3 days after employer receives notice California: Payment within 72 hours or at once, if employees give 72 hours notice District of Columbia: Earlier of the next payday or within 7 days; if the employee handles money, pay within 4 days Hawaii: Pay by the next payday or the last day, if employees give one pay period s notice Idaho: Earlier of the next payday, 10 days, or within 48 hours of employees written requests Kentucky: Later of the next payday or 14 days Louisiana: Earlier of the next payday or 15 days.
Termination Pay Voluntary terminations (continued) Massachusetts: Next payday or the following Saturday, if no regular payday Maine: Earlier of the next payday or 2 weeks after demand Michigan: As soon as the amount is determined, (next payday) Minnesota:, Next regular payday or the second payday if the first payday is fewer than 5 calendar days after the last day; full payment by the 20th day after termination Montana: Earlier of the next payday or 15 days Nebraska: Earlier of the next payday or 2 weeks New Hampshire: Next payday or within 72 hours if employees gave one pay period s notice and are prohibited from working during the notice period
Termination Pay Voluntary terminations (continued) Nevada: Earlier of the next payday or 7 days of termination Oregon: Due on employees last day if they gave at least 48 hours notice or the earlier of the next payday or within 5 days if they didn t give notice; employees who didn t give notice and who didn t turn in time sheets must be paid within 5 days Rhode Island: Next payday or within 24 hours if business liquidates, merges, or moves to another state South Carolina: Within 48 hours or next payday, up to 30 days Tennessee: Later of next payday or 21 days Wisconsin: Next payday or within 24 hours if business liquidates, merges, or moves to another state West Virginia: Next payday or last day if employees gave one pay period s notice Wyoming: Within 5 days
Termination Pay Voluntary terminations Final check Vacation pay Take all the usual deductions Watch out for company policy/state laws on commissions, draws against commissions, bonuses, accrued vacation pay, other accrued time; employees who terminate with negative time in their PTO banks Don t hold the final check until employees return company equipment California, Illinois, Montana, Nebraska, and Rhode Island can t have use-it-or-lose-it vacation policies
Termination Pay Wrapping up termination pay Company termination policy Start with a general statement describing the termination procedure State the philosophy of the company s termination policy State that employees will be paid for accrued vacation time, but not sick time Detail the separation procedure o Employees must give adequate notice o Employees must return company property o Employees must satisfy any financial obligations to the company o Managers will discontinue the employee s computer passwords and access to all information systems
Termination Pay Wrapping up termination pay Company termination policy o Managers must complete a termination pay request and other paperwork o Payroll cancels direct deposit and cuts a paper check Set procedures for involuntary terminations o Notify HR o Notify Benefits
Termination Pay Paying deceased employees Federal law treatment Wages paid after death are paid to the deceased employee s estate or beneficiary If a paycheck is returned, cancel it, and reissue a new check in same amount, net of withholding, but to deceased employee s estate Deceased employee may also be owed accrued wages Wages paid in the same calendar year as death are exempt from income tax withholding, but are subject to FICA Wages paid to the beneficiary or estate after the calendar year of death are exempt from tax withholding
Termination Pay Paying deceased employees Federal law treatment Tax reporting on Form W-2 in same year as death: Wages deceased employee earned before death Wages paid after death, including accrued taxable benefits: Report only as Social Security and Medicare wages; also report the withheld FICA taxes Tax reporting on Form 1099-MISC: Report payments to the estate or beneficiary Use the payee s Taxpayer Identification Number Solicit the payee s Taxpayer Identification Number by sending a Form W-9
Termination Pay Paying deceased employees Checklist for paying deceased employees Notify the Payroll department as soon as possible End direct deposit immediately upon notification of death and pay the final check on paper Out of final regular pay, deduct for health, dental, vision, pension o If a third-party handles voluntary deductions, e-mail a request for final charges, so they can be deducted from the final check o Freeze wages and deductions for other voluntary benefits o Continue involuntary deductions from the final check Payout for accrued benefits follows company policy on final pay Send the estate or beneficiary Form W-9, include a self-addressedstamped envelope and name of contact person to answer questions
The Employee Pay Workshop: Compliance Advice for 2014 Alice Gilman Esq. alice.gilman@gmail.com