Under the FLSA a late paycheck is as bad as no paycheck

by Michael Haberman on September 8, 2014 · 4 comments


ID-10058456 Image courtesy of sscreations at FreeDigitalPhotos net

Missing a paycheck because of cash flow violates the FLSA

Cash flow can sometimes be problematic to small businesses. As a result an owner may be tempted to pay employees late. A word of warning, don’t!

Violation of the FLSA

The Fair Labor Standards Act (FLSA), also known as the Wage & Hour law, requires that employees get paid for the time they work. Occasionally however, cash flow may be such that there is just not enough money in the bank at the time payday comes. I have known owners who then tell their employees that they will not be getting a paycheck but it will be made up to them the following week. Some employees can handle this but others cannot. So many, including the company and the employees, end up in dire straits.

According to Doug Haas, an attorney with  Franczek Radelet P.C., under the FLSA, a late payment is no different than no payment at all! Haas further says “Under the FLSA, if an employer’s failure to pay wages is ‘willful’ (voluntary and intentional, not just negligent), then an employee can seek ‘liquidated’ damages in an amount equal to the wages that were not paid. Yes, that means the FLSA would require you to cut a second payroll check to the employee to cover the statutory damages. An employee’s burden in showing willfulness is not difficult here. Courts essentially presume that a violation was willful unless an employer can demonstrate otherwise.” Delaying a paycheck is a deliberate business decision so it fulfills the requirement for “willful” without any difficulty.

The courts, including the U.S. Supreme Court, have ruled that employees are entitled to damages without even having to prove they were caused difficulty by missing a paycheck. State regulations may be even harsher, especially if the missed paychecks put employees in arrears with their obligations. It can be a major mess.

A possible solution

There is a possible solution to this problem. The FLSA allows an employer the ability to drop someone’s wages to minimum wage. With this in mind a business would be better off in trying to maintain giving non-exempt employees their paycheck but reduce the amount to minimum wage. Hopefully there would be enough cash available to cover that amount. The missed wages could then be made up when the cash returns.

With exempt employees it is a bit more problematic. Reducing them $455 per week would meet the exemption standard, but if you reduce them to $7.25 per hour then you may be stripping them of their exemption for that time period and them may owe them overtime for that pay period, if any is worked. Small business owners are much better off taking the hit themselves rather than skipping paychecks. A line-of-credit to borrow these amounts is also a possible solution, but as we saw during the economic downturn, many businesses had their lines-of-credit suspended, thus providing no outlet.

The Lesson

The lesson in this is that cash flow is critical. Looking ahead and anticipating low cash flow can be critical in avoiding missing a paycheck. To avoid fines and penalties and the costs of a lawsuit do whatever you can do to avoid not paying people late.

By the way, it is not only small businesses that have run into this problem. Haas’ article Under the FLSA, a Day Late is a Dollar Short is actually about the Federal Government and its cash flow issues during the furlough period due to a lack of a budget. Those employees that got late paychecks were not happy and they sued and won.

 

Image courtesy of sscreations at FreeDigitalPhotos.net


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{ 3 comments… read them below or add one }

Nar sanyasi May 17, 2016 at 6:59 am

I work 3 years on helpern sea food in Atlanta ga but unfortunately I move to Ohio for any reason.Therefore till now I’m waiting my paycheck for my last week all most 500 n some things.i have no idea about it I’m worrying about it

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Rosa Galvez June 26, 2017 at 9:11 pm

I just started working for Abrio Care in Kingman Arizona, I went to pickup my paycheck today on payroll day and my paycheck wasn’t there. The manager was’nt in, the receptionist said she wasn’t going to be in for another week I would have to wait intil Friday to summit it in and wait another 2 weeks to get paid. which I get paid minimun wage. which I only worked 9 hour in one week.

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Michael Haberman August 10, 2017 at 12:00 pm

Rosa, I hope your situation has been solved by now, if not you need to file a complaint with the state labor board.

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