How and When to Pay Your Employees

By Jeffrey Phillips | Small Business

Paying your workers in a timely and, above all, legal manner should be one of your business’ top priorities. There are several applicable laws, and although certain aspects of wage and hour law vary state by state, the best overall approach is to always pay the pre-agreed amount at a pre-agreed time, and make sure there’s as much transparency as possible while, still protecting workers’ privacy.

The Fair Labor Standards Act (FLSA) protects workers rights and, as a federal law, applies nationwide. The regulations of the FLSA are enforced by the Department of Labor Wage and Hour Division. Many of the basic rights enjoyed by workers today come from the FLSA; it governs national minimum wage, overtime pay, child labor laws, and record-keeping. It also outlines who is and who is not exempt from certain regulations, and defines “hours worked.”

Eighteen individual states have set their minimum hourly wage higher than the federal rate of $7.25, while the remaining states have either established the federal rate or have no set rate, thereby defaulting to the federal rate. A full table of states’ rates can be found on the National Conference of State Legislatures website. You must pay all employees the equivalent or higher of the national minimum wage, although exceptions apply in the case of tipped workers (in which case you must pay at least $2.13 an hour as long as tips bring the rate up to meet at least the federal minimum wage). Those under the age of 20 must receive at least $4.25 an hour for the first 90 days, at which points the federal rate kicks in. Other specific exceptions are detailed on the Department of Labor website.

How to Pay Workers

Payment has to be in any form redeemable for cash. Direct debit, payroll cards, and checks are the most commonly used means of payment. For employers, the least expensive method for distributing funds tends to be direct deposit via Automated Clearing House, where funds are moved electronically to workers’ accounts on payday. If workers don’t have a bank account, a payroll card acts in much the same way, being credited with the funds in the same way an account would be. The cards are usable at ATMs.

An alternative method – payment via debit card – has faced legal challenges recently over reports that some debit cards charge fees for, among other things, ATM use, activation, online purchases, and inactivity. If a company offers debit cards without an alternative payment option, the company may be intentionally or violating minimum wage law. Although payment through debit card is perfectly legal, it should be offered only as an option among alternatives. Workers should have the opportunity to receive wages via other means.

When to Pay Workers

Paying employees is a legal obligation, and it is illegal to wrongfully withhold pay. The only deductions you can make from an employee’s pay are those required by law (such as tax). Employers cannot withhold wages without an employee’s consent, withhold wages because of disagreements or discipline proceedings, or withhold a final paycheck when an employee leaves the company.

As a company, the frequency with which you pay your workers is up to you – there’s no federal regulation per se. You do need to ensure that your pay periods are clear to workers and that you maintain a regular routine – weekly, bi-weekly, or monthly is the norm. Final paychecks should, as a rule, be paid during the next pay period following an employee’s departure from your company. It’s standard practice for companies to pay workers for the previous week’s or month’s work. Fridays are generally preferred, though there’s no hard and fast rule.

It’s important to note that if you have a staff handbook or guidelines in which you outline your pay periods, you must stick to these – the guidelines, although not actually a contract, form an agreement that you may be called upon to honor should a disagreement arise.

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