8 minute read | March.13.2023
Despite the joint statement by the Treasury Department, the Federal Reserve and the FDIC, many of our clients continue to ask about state law restrictions related to postponing payroll for employees. Below is a discussion of some of the most frequently asked questions that Orrick attorneys have received about payroll and employment matters. The guidance below is not intended to be a substitute for obtaining legal advice based on individual circumstances. Employers should consult with employment counsel regarding their individual circumstances before determining a course of action.
The guidance provided here is updated as of the time of this distribution. Given the dynamic nature of the situation, we encourage you to reach out to your Orrick client team. We will provide refreshed guidance as more information becomes available.
If payroll is delayed, you should notify employees of the delay, let them know it is related to the closure of Silicon Valley Bank, and inform them that the company is working on getting the payments processed. The notice will need to be tailored based on business circumstances, including when payment can be expected and if any other changes to the designated pay date are being made. The timing and frequency of when wages must be paid is governed by the law of the state in which the employee works. Most companies have designated pay dates that are scheduled before the legal deadline to provide wages. While some states require advance notice before changing a designated pay date, given the circumstances, notice should be provided as soon as possible. Providing this notice, being transparent, and allowing employees to plan accordingly can help with employee relations and mitigate legal risk.
Given that depositors now have or should be receiving full access to their funds at SVB in the U.S., taking further measures, such as furloughing employees, reducing salaries or hours or conducting layoffs as a result of the closure of SVB is no longer necessary. Continuing to have employees work if and when you are aware that payroll cannot be made can result in penalties, including, in some jurisdictions, personal liability for directors and officers (civil or criminal, depending on the jurisdiction). However, here, while there may be some current delays in accessing funds, there is no reason to believe this will delay additional payrolls. If you have concerns that further payrolls may be impacted, please contact a member of Orrick’s team to discuss.
Yes. In light of the news that access to all funds in SVB in the U.S. will become available, you can have employees return from furlough.
Please note that if an exempt employee works at all during a workweek (as designated by the employer for payroll purposes), that employee must be paid their full salary for that week. Therefore, if you implemented a furlough and an exempt employee works at all during the workweek that the furlough was in place, the employee should be paid their full wages for that workweek. If you implemented a furlough prior to the commencement of the workweek, and do not want to provide payment for days not worked, you should have them return from the furlough upon the commencement of the following workweek. For employees in California, it will be important to return them from the furlough before the end of the current pay period to avoid unintentionally triggering the requirement to provide termination pay.
The timing of when wages are due varies by state and is governed by the state law in which the employee provides services. As a general matter, wages should be paid in a timely manner pursuant to the designated payroll cycles. Some states provide for penalties if payment is not paid on the designated date, while others provide a grace period or require a written demand from an employee first, and some others do not have specific penalties for late payments. Failure to pay altogether can result in various wage and hour violations, including minimum wage and overtime liability, liquidated or treble damages, attorneys’ fees, and costs. It can also result in criminal offenses in certain jurisdictions.
Employers looking to change their designated pay date should consult with applicable state laws for any notice requirements and to ensure the new pay date is within the legal timeframe required. It is generally recommended that notice of a change to a designated pay date be made at least one pay period in advance, or as otherwise required under state law, but when that is not possible, advance notice, at least one day prior to the payment date, should be made to mitigate risk of penalties. Below are the wage frequency requirements under California and New York laws.
In California, employees should be paid on their designated pay date. Nonexempt employees must be paid at least 2x a month. Payment for work performed in the first half of the month (1st-15th) must be made between the 16-26th of the month and payment for work done in the second half of the month must be paid between the 1st-10th of the following month. Exempt employees can be paid once a month, provided that they receive full payment for that month (including the unearned portion for the remainder of the month) by the 26th of the month in which work is performed. Employers can change their designated pay date as long as the new pay date falls within the pay date requirements set forth above. California does not include any specific advance notice requirement, although payment is considered late if not made on the designated date, therefore notice of this change should be made to employees at least one day prior to the designated pay date (and preferably one pay period in advance). Pursuant to the California Wage Theft Act, employers are required to provide nonexempt employees with notice of any changes to their pay date within 7 days following such change, but to avoid penalties under California Labor Code, advance notice should be made.
New York has various wage frequency requirements based on the type of employee, as outlined in these New York State FAQs. For example, with certain exceptions, nonexempt clerical workers must be paid at least semi-monthly, manual workers must be paid at least weekly with payment due no later than 7 calendar days after the wages are earned, and commissioned employees must be paid at least monthly and no later than the last date of the month following the month the wages are earned. New York labor law does not impose these timing requirements for employees exempt under the administrative, professional, or executive exemptions. Pursuant to the New York Wage Theft Act, employers should provide both exempt and nonexempt employees with 7 days prior written notice to any changes in the designated pay date (or as soon as possible).
There can be penalties for late payment of wages under different state laws. These penalties range from civil penalties to potential criminal offenses.
For example, in California, pursuant to California Labor Code Section 210, for any initial violation, the penalty is $100 for each failure to pay each employee. For each subsequent violation, or any willful or intentional violation, $200 for each failure to pay each employee, plus 25 percent of the amount unlawfully withheld. Further, for terminated employees, failure to provide payment on the last date of employment can result in waiting time penalties equal to the employee’s daily wages for the shorter of 30 days or the date they are paid.
In New York, violation of the pay frequency requirements can result in penalties, attorneys’ fees and liquidated damages equal to 100% of late wages paid.
However, given the unforeseen and extraordinary circumstances, provided employers act in good faith to process payroll as quickly as possible and keep employees notified, criminal and material civil liability is unlikely.
Under some state laws, including California and New York, there can be personal liability for directors and officers for failure to make timely wage payments. This can include any penalties assessed for delayed payment of payroll, even if the payroll is eventually paid. California Labor Code 558.1 defines those that can be liable as “the employer or other person acting on behalf of an employer”, with the term “other person acting on behalf of an employer” being limited to “a natural person who is an owner, director, officer, or managing agent of the employer.” In New York, individuals can be liable for wage violations when they are deemed the “employer,” which can occur where the individual has overall operational control of the corporation, possesses an ownership interest in it, controls significant functions of the business, or determines the employees' salaries and makes hiring decisions. Here, given the extraordinary circumstances, provided you are working in good faith to process payroll as expeditely as possible, personal liability is very unlikely.