What Are The Laws Against Not Paying Employees?

Times may be tough, especially since the pandemic has negatively impacted many businesses. However, regardless of your situation, not paying employees or delaying payments is never a good decision. First, you are endangering the livelihood of your staff and their families. Plus, in many situations, the employee working for you may be the sole breadwinner. So before you choose to delay payments or worse, forget to pay altogether, try having some compassion for your employees. If this doesn’t work, you need to know that, as an employer, you have a legal obligation to pay your staff. This means that there are state and federal laws that employees can use to protect themselves against such a scenario. Keep reading to learn how the law can (and will) force employers to pay the wages agreed on in the initial contract. 

Violations Regarding Payment

Under US law, employers don’t have the right to:

• Withhold and deduct payment without consent (except for the ones mandated by the law)
• Practice payment withholding as a form of punishment
• Offer payment below minimum wage or deduct payment for tools of the trade if the end result falls below the minimum wage.

It’s important to mention that consent is not required for withholdings such as FICA taxes or a Wage Garnishment. Non-required deductions require the employee’s explicit consent, so make sure to have it on record (in case of an audit or a complaint). 

If an employee makes a mistake or you have to terminate their contract based on their behaviour or performance, the payment must be in full (according to the contract specifications and the hours/days worked).

The Laws that Govern Employee Payments

Every company, organisation, or institution that works with employees (as in, it hires them) is mandated by both State and Federal laws to respect their right to honest and timely pay. Below, you can find the laws that make sure these conditions (and others) are followed. 

Federal Laws

The minimum wages, overtime pay, youth employment, and other similar specifications are set via the Fair Labor Standards Act (FLSA). This is in the administration of the U.S. Department of Labor’s Wage and Hour Division. 

State Laws

In some situations, state laws may be more strict than federal laws. When these two are different, the employer must comply with the law that gives greater benefit to the employees (you don’t get to choose). 

What If I Choose Not To Pay?

Times are tough and cash flow is not enough to cover employees’ wages and business costs. Therefore, it may seem like a natural decision to cut their pay for a few months, in order to keep the business afloat. However, according to US law, employers cannot perform any cuts or deductions without an employee’s explicit consent (on record). Plus, if you file for bankruptcy, this doesn’t mean you don’t still have a legal obligation towards employees who still have to be paid for their hours. So what can happen if an employer cannot/does not want to cover payments?

The most common scenario is that the employees will file a suit against the company, in an attempt to recover back wages. Plus, if they feel they have been discriminated against or wrongfully discharged without payment, the lawsuit may get more complicated. If employees don’t take any action, then the Secretary of Labor may step in and bring suit for back wages. 

In both these scenarios, the employer will be required to make the payments plus compensations, and they may also receive a steep fine for their actions. Also, if the violations are repeated, there may be some civil monetary penalties. Lastly, if it can be proven that employers violate the law by choice (willfully), they may face criminal charges. 

Key Takeaways

US laws are built to protect employees’ right to receive proper payment for their work. Therefore, payment cuts and deductions for the sake of business are not a good idea. In fact, it’s best to find ways to promote employees who are doing a great job in an effort to increase productivity and bring in more customers. True, there are times when cash flow is not great, but a business owner must always think ahead and come up with a backup plan for any scenario.