Pay: When to Pay It, How to Pay It, and How to Tax It Mindy Harada Mayo Ryan, LLC Mindy.Mayo@ryan.com
Employment Tax Issues Pay-When you have to pay Ramification to UI Funds WARN Act Severance Payments SUB Plans
Pay Each state has separate laws and regulations on the governance of termination pay to employees. Determine when an employee must be paid Penalties may be assessed for noncompliance Each state has different rules Consult with a Labor Attorney
State Voluntary Involuntary Alabama No provision No provision No provision Associated Penalties Alaska scheduled payday that is at least 3 days after employee s notice of resignation is provided. Within 3 working days. If termination is a temporary layoff or lockout during a pay period, the portion of compensation earned must be paid by the next regularly The lesser of the employee s regular wages from time of demand until time of payment or 90 days wages as a civil penalty. $1000 fine and/or up to 1 year in jail for each violation as a criminal penalty. Arizona By the next regular payday or by mail if the employee requests The earlier of 3 working days or by the end of the next regularly scheduled pay period. Triple the amount of the unpaid wages. Arkansas No provision Within 7 days of termination Up to 60 days of continuation of wages.
State Voluntary Involuntary Associated Penalties California Within 72 hours. Immediately if a 72 hour notice of resignation is provided. Strikers and movie employees, on next regularly scheduled payday. Immediately. Within 72 hours for seasonal employees. Within 24 hours for oil drilling employees. Within 24 hours for laid off groups of motion picture employees. Up to 30 days of continuation of wages for willful violation. A civil penalty, $50 for each initial failure to pay wages; $100 plus 25% of the amount unpaid for each subsequent violation or if violation is willful. scheduled payday for other terminated movie employees Colorado scheduled payday Immediately or within 6 hours of the Payroll Department becoming operational. By mail on request. Next day if payroll is processed offsite. The greater of 10 days average daily wages or 50% of wages due for failure to pay within 60 days of termination. A civil penalty of $50 per day. A criminal penalty up to $300 and/or up to 30 days imprisonment.
State Connecticut Delaware District of Columbia Voluntary By mail if requested. The earlier of the next regularly scheduled payday or 7 days. 4 days if the employee is responsible for the employer s money. Involuntary The next business day. The next regularly scheduled payday if the employee is suspended during a labor dispute or laid off. By mail if requested. The next working day. Within 4 days if responsible for employer s money. The next regularly scheduled payday if suspended due to a labor dispute. Florida No provision No provision No provision Georgia No provision No provision No provision Associated Penalties A civil penalty of double the wages owed. A criminal penalty of $200 to $5,000 and/or 3 months to 5 years of imprisonment. Liquidated damages of 10% of the unpaid wages per day plus a civil penalty of $500 to $5,000. Liquidated damages of 10% of unpaid wages per day. A criminal penalty up to $300 and/or up to 30 days imprisonment for a first violation, up to $1,000 and/or up to 90 days imprisonment for later violations.
State Voluntary Involuntary Associated Penalties Hawaii By mail on request. Immediately if one pay period s notice of resignation is provided. Immediately. By the next working day if immediately is impossible. scheduled payday if suspended due to a labor dispute or temporarily laid off. Penalty equal to the amount of wages due plus 6% interest per year. A criminal penalty of $100 to $10,000 and/or up to 1 year imprisonment. By mail on request. Idaho The earlier of 10 days or the next regularly scheduled payday (excluding weekends and holidays). Within 48 hours of the employee s written request for payment. The earlier of 10 days or the next regularly scheduled payday (excluding weekends and holidays). Within 48 hours of the employee s written request for payment. Up to 15 days of continuation of wages with a $750 maximum penalty.
State Voluntary Involuntary Associated Penalties Illinois Immediately if possible; if not, by next regularly By mail if requested in writing. Immediately if possible; if not, or if suspended due to a labor dispute or temporarily laid off, by next regularly By mail if requested in writing. Penalty of 1% of the wages due per day, up to twice the amount of unpaid wages if failure to obey an order to pay wages within 15 days. Indiana scheduled payday. 10% of the wages due per day, up to twice the amount of unpaid wages as liquidated damages. Iowa Commission payments within 30 days. scheduled payday. Commission payments within 30 days. Penalty of 1% of wages due per day, up to twice the amount of unpaid wages if failure to obey an order to pay wages within 15 days. Kansas By mail if requested. scheduled payday. By mail if requested. The lesser of a 1% penalty of the unpaid wages beginning on the 8 th day after payday, or 100% of unpaid wages.
State Kentucky Louisiana Maine Maryland Massachusetts Voluntary The later of the next regularly scheduled payday or 14 days after termination. The earlier of the next regularly scheduled payday or 15 days after notice of resignation. The earlier of the next regularly scheduled payday or 14 days after demand for payment. If there is none, by the following Saturday. Involuntary The later of the next regularly scheduled payday or 14 days after termination. The earlier of the next regularly scheduled payday or 15 days after termination date. The earlier of the next regularly scheduled payday or 14 days after demand for payment. Associated Penalties $100 to $1,000 fine per violation. The lesser of up to 90 days of continuation of wages or full wages from time of demand. $100 to $500 fine per violation. Up to $1,000 as a criminal penalty. Immediately Up to $25,000 and/or up to 1 year imprisonment for a first violation, up to $50,000 and/or up to 2 years imprisonment for later willful violations as a criminal penalty.
Michigan Minnesota State Voluntary As soon as amount due can be determined with due diligence, but no later than 3 days after termination for hand harvesters who resign. If payday is less than 5 days after the last workday, then wages are due by the second regularly scheduled payday but no later than 20 calendar days after the last day of work. Involuntary As soon as amount due can be determined with due diligence. Immediately, or within 24 hours of demand. Mississippi No provision No provision No provision Associated Penalties Up to $1,000 and/or up to 1 year imprisonment if intentional. A civil penalty up to $1,000, or all wages owed plus 10% per year until paid, plus fees and costs. A penalty of up to 15 days, beyond a 10 day limit, of the employee s average daily earnings if not paid within 10 days of the Labor Commissioner s Demand.
State Voluntary Involuntary Missouri No provision On the day of termination. Within 7 days if the employee requests by mail. Montana The earlier of the next regularly scheduled payday or 15 days from the date of resignation. Immediately, unless the employer s written policy extends the period of time to the next regularly scheduled payday or 15 days from the date of termination whichever is earlier. Nebraska No provision The earlier of the next regularly scheduled payday or 2 weeks. Nevada The earlier of the next regularly scheduled payday or 7 days. Immediately. Associated Penalties Up to 60 days of continuation of wages. Up to 110% of the unpaid wages. A penalty equal to the amount of unpaid wages If not paid within 30 days of next regular payday, and attorneys fees up to 25% of unpaid wages. Up to 30 days of continuation of wages; an administrative penalty of up to $5,000 per violation.
State Voluntary Involuntary Associated Penalties New Hampshire By mail if the employee requests or within 72 hours if one pay period s notice of resignation is provided. Within 72 hours. scheduled payday if the employee is suspended due to a labor dispute or is temporarily laid off. 10% of the unpaid wages up to the amount of unpaid wages as liquidated damages. New Jersey By mail if the employee requests. By mail if the employee requests. A fine of $100 to $1,000 per day as a disorderly persons offense if the violation is willful. New Mexico Within 5 days. Within 10 days for commission, piece work or task wages. Up to 60 days of continuation of wages. scheduled payday if the employee is suspended due to a labor dispute.
State Voluntary Involuntary Associated Penalties New York By mail if the employee requests. By mail if the employee requests. $500 to $20,000 and/or up to 1 year imprisonment for a first violation as a criminal penalty. A civil penalty up to $500 for each failure to pay wages due. North Carolina By mail if the employee requests. By mail if the employee requests. Up to the amount of unpaid wages under court ordered damages. North Dakota Up to 30 days of continuation of wages plus 6% interest per year until paid. If the employer was liable for 2 wage claims in the past year, the fine is double the amount of unpaid wages and triple the amount if 3 or more previous claims exist. Ohio No provision
State Voluntary Involuntary Associated Penalties Oklahoma By certified mail if the employee requests. By certified mail if the employee requests. The lesser of 2% of the wages due or the amount of unpaid wages as liquidated damages. A misdemeanor conviction of a $500 administrative fine if a second violation occurs in a 6 month period. Oregon The earlier of the next regularly scheduled payday or 5 business days. Immediately if the employee provides a 48 hour notice of resignation. By the end of the 1 st business day after termination. Continuation of wages at the same rate for 8 hours per day until paid or action is commenced. A penalty limited to 100% of unpaid wages only if the employee does not notify the employer of unpaid wages. There is no limit if the employer receives written notice and does not pay the full amount within 12 days. The Labor Department may assess a civil penalty up to $1,000.
State Voluntary Involuntary Associated Penalties Pennsylvania scheduled payday Liquidated damages for wages 30 days past due. By certified mail if the employee requests. By certified mail if the employee requests. The greater of 25% of the unpaid wages or $500. Puerto Rico No provision Rhode Island South Carolina Within 48 hours of separation or by the next regularly scheduled payday, but not more than 30 days. Within 24 hours if the employer moves, merges or shuts down. Within 48 hours of termination or by the next regularly scheduled payday, but not more than 30 days. A criminal penalty up to $300 and/or up to 90 days imprisonment. If the employee is terminated without cause, 1 to 3 months of wages plus 1 week s wages for each year of service. $400 and/or 10 to 90 days imprisonment per violation as a criminal penalty. Triple the amount of the unpaid wages, plus fees and costs.
State Voluntary Involuntary Associated Penalties South Dakota scheduled payday or as soon as all employer property is returned. scheduled payday or as soon as all employer property is returned. If intentional, a misdemeanor conviction with a penalty double the amount of wages owed if fraud or malice occurs. Tennessee The later of the next regularly scheduled payday or 21 days after separation. The later of the next regularly scheduled payday or 21 days after termination. $100 to $500 fine. A civil penalty of $500 to $1,000 if violation is willful. Texas Within 6 days. $1,000 or the amount of wages owed. Utah Within 24 hours. 5% of the unpaid wages per day up to 20 days. Vermont If there is none, by the following Friday. Within 72 hours. $500 and/or up to 1 year imprisonment as a criminal penalty. Virginia Up to $1,000 fine for a knowing violation.
Within 24 hours if the employer moves or closes. State Voluntary Involuntary Associated Penalties Washington By the end of the pay period (the next regularly scheduled payday). By the end of the pay period (the next regularly scheduled payday). All wages owed plus interest 1% per month. If violation is willful, a civil penalty of the greater of at least $500 or 10% of the total amount of unpaid wages, up to a maximum of $20,000. A misdemeanor conviction may also apply with up to 90 days in a county jail and/or up to a $1,000 fine. West Virginia Immediately if on pay period s notice of resignation is provided. Within 72 hours. scheduled payday if suspended due to a labor dispute or the employee is temporarily laid off. All wages due plus triple that amount as liquidated damages. Attorneys fees and costs in a civil action. Wisconsin Up to $500 and/or up to 90 days imprisonment
State Voluntary Involuntary Wyoming Within 5 working days. Within 5 working days. scheduled payday if suspended due to a labor dispute or the employee is temporarily laid off. Associated Penalties A misdemeanor conviction with a $500 to $750 fine if failure to properly pay the terminated employee was willful. There are approximately 21 states that have the same regulations regarding termination pay regardless of the type of termination voluntary or involuntary. For involuntary terminations, 8 states require final pay to be paid immediately. There are 4 states that have no provisions on termination pay regardless of type of termination, nor do they any penalty provisions.
Ramifications on UI Funds At least 23 states have depleted their UI reserves Results in future increased rates Potential surcharges, bond measures
Increase Annual FUTA Tax per Employee over normal State 2012 2013 2014 Arizona $63 $84 $105 150% Arkansas $84 $105 $126 200% California $84 $105 $126 200% Colorado $63 $84 $105 150% Connecticut $84 $105 $126 200% Delaware $63 $84 $105 150% Florida $84 $105 $126 200% Georgia $84 $105 $126 200% Illinois $84 $105 $126 200% Indiana $105 $126 $147 250% Kentucky $84 $105 $126 200% Missouri $84 $105 $126 200% Source: U.S. Dept. of Labor, Employment and Training Administration, UI Program Statistics
Increase Annual FUTA Tax per Employee over normal State 2012 2013 2014 Nevada $84 $105 $126 200% New Jersey $84 $105 $126 200% New York $84 $105 $126 200% North Carolina $84 $105 $126 200% Ohio $84 $105 $126 200% Pennsylvania $84 $105 $126 200% Rhode Island $84 $105 $126 200% South Carolina $105 $126 $147 250% Vermont $63 $84 $105 150% Virgin Islands $84 $105 $126 200% Wisconsin $84 $105 $126 200% Source: U.S. Dept. of Labor, Employment and Training Administration, UI Program Statistics
Payments made at termination Health Insurance Premiums paid by employers after layoff or termination not taxable to employee assuming accountable plan requirements are met Outplacement Assistance Not a taxable event if provided as part of an outplacement plan to affected employees Severance Fully taxable for all payroll taxes May affect unemployment benefits
Employment Tax Issues Facts to address when undergoing workforce transition: WARN Act-how much notice must be given to worker Many states prohibit state unemployment benefits while severance payments are made Wage continuation vs. lump sum benefits can make a difference For example: Ohio prohibits an overlap of severance and state unemployment benefit when employer properly reports payments
Employment Tax Issues Facts to address when undergoing workforce transition: WARN Act- An employer must give notice if an employment site will be permanently or temporarily shut down, resulting in an employment loss for 50 or more employees during a 30 day period. Employers are covered by WARN if they have 100 or more employees, not counting employees who have worked less than 6 months out of last 12 or work an average of less than 20 hours per week. If there is a mass layoff of 500 or more employees or for 50 to 499 employees if they make up at least 33 percent of the employer s active workforce. Written 60 day notice must be given.
Employment Tax Issues Severance Payments Excluded from definition of wages depending upon employment agreement and buyout provisions Ability to avoid FICA, FUTA, and SUTA taxation as well as withholding for the employee
Form W-2 With regard to providing Form W-2, if an employee terminates employment prior to the end of the year, there are two possibilities: 1. The employer can wait until January 31 of the following year to send Form W-2 to the terminated employee, or 2. If the employee requests, in writing, for a Form W-2 before the end of the year, the employer must provide the Form to the terminated employee within 30 days of the written request.
Employment Tax Issues Can severance payments be an event not subject to payroll taxes? Buyouts SUB Plans
Employment Tax Issues Supplemental Unemployment Benefit Plan Alternative to Severance pay Close the gap between state unemployment benefits and the employee s normal wage Not considered wages for FICA and FUTA Reduces Employer and Employee payroll taxes
Employment Tax Issues Quality Stores In a long-awaited decision, the U.S. Court of Appeals for the Sixth Circuit held in United States v. Quality Stores, Inc., September 7, 2012, that certain dismissal payments were Supplemental Unemployment Compensation Benefits (SUB) exempt from FICA taxes.
Employment Tax Issues Protective Claims The due date for the protective claim is three years from April 15 of the calendar following the year in which the severance payments were made. For example, for FICA taxes paid in 2009, a protective claim should be filed by April 15, 2013.
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Pay: When to Pay It, How to Pay It, and How to Tax It Mindy Harada Mayo Ryan, LLC Mindy.Mayo@ryan.com