Companies impacted by the Silicon Valley Bank (SVB) failure may be concerned about their ability to meet immediate payroll obligations as they await funds from government regulators. Despite regulatory assurances that funds will be available in the near-term, employers with funds in SVB may remain concerned about their ability to meet ongoing obligations. As a result, employers may be considering alternatives and stop-gap measures and should assess the following employment law issues and look at the specific laws of those jurisdictions in which their employees work:
- Failure to pay employees on announced pay dates puts an employer at risk of liability under the federal Fair Labor Standards Act (FLSA) as well as wage payment laws in many states. These laws provide for the recovery of back pay, attorneys’ fees and liquidated damages, which may be 100% of the back pay owed under the FLSA or even more in some states that provide for treble damages.
- State wage theft laws may demand notices to employees who will not be paid and further may provide for statutory penalties and fines and even criminal penalties in some circumstances.
- Missed payroll also may have payroll tax implications for failure to deposit employment taxes with the IRS on time. Penalties vary by how many days past due the taxes are, with fines ranging from 2-15%. To conserve funds, or in an attempt to avoid missed payroll, employers may consider pushing back payroll dates, but there are limits and notice is often required. Many states require employees to be paid at least twice a month, although a number of states allow employees who are exempt from overtime requirements to be paid less frequently. Generally, changes in the pay date will require notice under state laws, typically ranging from seven calendar days to a month.
- Employers may consider reducing employee compensation or furloughing employees to save cash. Reductions in employee compensation must be prospective only, and state laws may require notice for changes in employee compensation. Furloughs (also known as temporary layoffs) may trigger obligations to pay employees for accrued but unused paid time off under employer policies and state laws. In addition, reductions in compensation for exempt employees should be done consistent with the FLSA to preserve the salary basis payment method and avoid overtime liability.
- Employers making changes in the workforce through layoffs, furloughs or reduction of hours need to be cognizant of when such actions may trigger notice requirements under the federal Worker Adjustment Notification Act (WARN) and corresponding state and local laws.
- Unionized employers may have an obligation to bargain with the representatives of their employees over any changes, including missed or modified payroll practices, and provide information to the union upon request. In addition, failure to make payroll will have implications for employers participating in union multi-employer pension, health and welfare and other funds, and employers should consider the impact under the funds’ delinquency policies which often are incorporated into collective bargaining agreements.
Ballard Spahr’s Labor and Employment Group frequently advises employers on all of the above referenced issues. Please contact us if we can assist you in understanding these legal requirements and the measures an employer should take to remain in compliance with applicable laws.