March 13, 2023
ジャンプリンクテキスト
Originally published March 11, 2023 – Last updated March 13, 2023
The recent closure of Silicon Valley Bank (the SVB Closure) has created liquidity issues for many employers, which in turn may impact their ability to, among other things, timely pay employees and operate their compensation and benefit programs. This alert discusses key employee-related considerations for employers that may arise in the wake of the SVB Closure and related disruptions in the employers’ access to liquidity. We note that as a consequence of the liquidity crises produced by the SVB Closure, federal and state labor (or similar) agencies may eventually provide employers with some level of relief from their obligations under applicable federal and state labor law through the issuance of emergency or similar orders. However, as of the date of publication, there is no indication that these agencies will provide employers with any immediate relief.
Many employers impacted by the SVB Closure are faced with difficulties in timely making payroll. Most employers are covered by the Fair Labor Standards Act (FLSA), which governs federal wage and hour standards. Covered employers have several obligations under the FLSA, including ensuring nonexempt employees are paid (a) minimum wage for all hours worked and (b) overtime for all hours worked in excess of 40 hours in any workweek. There is no explicit deadline in the FLSA itself with respect to the payment of wages. Nevertheless, the U.S. Department of Labor’s (the DOL) position is that FLSA-mandated sums earned for a workweek generally must be paid on the regular payday for the pay period in which the workweek ends. There is not a currently available waiver or exemption for noncompliance resulting from a bank closure.
An employer that repeatedly or willfully violates the minimum wage or overtime pay requirements of FLSA is subject to a civil penalty of up to $1,100 for each violation. For any violation (including isolated or inadvertent violations), the employer is liable to the employee for the amount of unpaid wages and overtime pay, if any, plus an equal additional amount paid as liquidated damages. There is no requirement that the affected employee show harm beyond the late payment (e.g., that such affected employee was unable to pay rent or similar adverse consequences on account of the late payment). Instead, all that is necessary is for the employee to show that the payment was owed and that it was not paid. Furthermore, paying the amounts as soon as the employer can does not cure the violation.
There are several methods that FLSA provides for recovering unpaid minimum and overtime wages, which are: (a) The Wage and Hour Division of the DOL may supervise payment of back wages, (b) the Secretary of Labor may bring suit for back wages and an equal amount as liquidated damages, (c) an employee may file a private suit for back pay and an equal amount as liquidated damages, plus attorneys’ fees and court costs and (d) the Secretary of Labor may obtain an injunction to restrain any person from violating the FLSA, including the unlawful failure to provide proper minimum wage and overtime pay.
In addition to potential penalties for compliance failures under FLSA, employers may also face penalties in connection with the failure to timely remit the employer portion of taxes, which includes federal income tax, Social Security and Medicare taxes and Federal Unemployment Tax. Generally, employers must send employment tax deposits to the IRS on a monthly or semi-weekly schedule (and in some instances more rapidly). There are penalties for untimely, incorrect or improperly paid employment taxes, imposed based on the number of days such taxes are overdue. Furthermore, employee earnings that are withheld by employers for the benefit of taxing authorities—so called “trust fund taxes”—also must be timely remitted to the IRS, and the failure to do so can give rise to personal liability of officers, directors and other persons or entities responsible for the collection and accounting for those taxes.
FLSA also imposes personal liability on officers and directors for wage and overtime violations under certain circumstances. An “employer” for purposes of the FLSA includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Courts have interpreted this to include persons who exercise significant operational control over corporate affairs, irrespective of whether persons were directly responsible for the violations. In determining whether to impose personal liability on an officer or director, courts will consider, among other things, whether the person (a) has the power to hire and fire employees, (b) supervises and controls employee work schedules or conditions of employment, (c) determines the rate and method of compensation or (d) maintains employment records.
In addition to complying with wage payment obligations under FLSA, employers must also comply with applicable state wage laws or risk additional fines and penalties. Unlike FLSA, many states impose specific intervals for paying employees (e.g., weekly, bi-weekly, etc.), which may vary depending on an employee’s role or function or the industry in which they work. For example, under New York law, absent an exemption, manual workers are required to be paid weekly and sales commission employees are required to be paid at least monthly. Penalties for failing to comply with state wage laws vary by state and can include liquidated damages and attorneys’ fees. In certain states, such as California, New York and Texas, officers, directors and, in certain cases large shareholders, may be held personally liable for violations of applicable state wage laws. See the Appendix to this alert for a brief summary of select state wage laws.
Absent contractual requirements, employers offer health benefits on a voluntary basis. Although the Affordable Care Act imposes penalties on covered employers for not providing coverage, federal law does not require employers to offer health coverage to their employees, nor does it generally prevent employers from cutting or reducing benefits. However, employers considering modifying or terminating health plan coverage for their employees may have to take certain steps (such as providing advance notice). For example, under the Employee Retirement Income Security Act of 1974, as amended (ERISA), employers are required to provide 60-days’ notice of any “material modification” (which is not defined by ERISA, and ultimately is a court determination should there be related litigation) to sponsored health-plans. Before reducing or terminating health plan coverage for employees, employers should contact their benefit plan administrators to confirm whether there are any restrictions for reducing or terminating health benefit coverage for employees and any notice requirements in connection with such reduction or termination.
Finally, if health benefit plans are terminated in their entirety and therefore no longer exist, there would be no opportunity for employees to seek continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
In connection with similar liquidity crises, employers have considered employee furloughs as an alternative to layoffs until they can resolve their liquidity issues. Furloughs generally refer to a mandatory, but temporary, cessation from work without pay, with the expectation that the impacted workforce would return to work with the employer in the future. The following discusses key considerations for employers contemplating furloughs.
Employers that sponsor group health plans should consider whether a furlough would allow employees to continue to participate in employer-provided health benefit plans as “active” participants without requiring participants to elect benefits under COBRA. The determination will depend on the terms of the applicable plan and the underlying insurance policies. In particular, it is important to consider how eligibility is defined in the plan document. The definition often focuses on whether employees are continuing to receive pay or perform services. If any plan amendments are required in order to provide active coverage rather than continuation coverage under COBRA, and if it is possible under the circumstances to adopt such amendments, employers must ensure they properly document the changes, including updating the summary plan description.
If furloughed employees do not qualify for active coverage, employers that employed at least 20 employees (whether full or part time) on more than half of its typical business days in a year must provide furloughed employees with notice of their right to elect COBRA coverage. Failure to timely provide a COBRA notice to terminated employees can subject employers to significant penalties. COBRA requires that continuation coverage for covered employees and their eligible beneficiaries extend for 18 months from the date of a “qualifying event” (extensions are mandatory in certain states; e.g., up to an additional 18 months (or 36 in total) of coverage is required for health insurance policies subject to New York law after such event).
Whether furloughed employees receive healthcare coverage through continued active participation or as a result of electing COBRA, employers may want to consider subsidizing the cost of healthcare premiums for some period of time, if liquidity becomes available to the employer.
A furloughed employee generally will be considered an active participant in a retirement plan and will not be considered to have experienced a “severance of employment.” As such, the employee would not qualify to take a termination distribution from the retirement plan. Further, furloughed employees would not be counted toward any partial plan termination assessment. Furloughed employees who are considered active participants may, subject to applicable plan terms, receive plan loans (or have existing loans remain outstanding) or in-service distributions.
The determination of whether a furloughed employee has experienced a “severance of employment” is based on facts and circumstances, and may change during the furlough, particularly if the employer no longer expects the employee to return to work or if the employer ceases operations. Changes to an employee’s annual salary due to the furlough can impact the employee’s 401(k) contribution levels and employer matching and profit-sharing contribution calculations. Furloughed employees should be notified of these effects and of how they can alter their deferral elections due to the expected change in their income.
Employers should review their equity plans to determine whether a furlough would be treated as a termination of employment. This determination is likely to fall to the plan administrator, which may be the board, a committee of the board, or an officer in the case of grants beyond the C-suite, and the plan document may provide the administrator with significant and binding discretion to construe its terms. In the event that it is determined that the furlough is a termination of employment, awards will be treated in accordance with the termination provisions of the plan or award agreement. However, typically, equity plans or the related award agreements provide for awards to remain outstanding and for continued vesting during an approved leave of absence (in some cases through an express leave of absence provision). It is also possible that a plan will provide that vesting be tolled during certain leaves of absence. Plan administrators should review plan provisions, including whether the plan documents limit the duration of an approved leave of absence to a set period (such as 90 days). If the existing plan terms are not in line with employer expectations, or the needs of the employer, the employer may wish to consider whether to amend awards to reach the desired outcome (and the accounting consequences of any change).
Employers should remain aware that changing circumstances may impact this assessment mid-furlough and separately assess whether the furlough has resulted in a “separation from service” under Section 409A, which is discussed further below, or, in the case of incentive stock options (ISOs), a termination of employment under the regulations governing ISOs.
Employers should consider whether an employee furlough results in a “separation from service” under its non-qualified deferred compensation plans covered by Section 409A. Under Section 409A, an employee furlough is not a “separation from service” so long as it qualifies as a “bona fide” leave of absence. A “bona fide” leave of absence is one where there is a reasonable expectation that the employee will return to perform services for the employer, and where either: (a) the leave is less than six months or (b) the leave of absence exceeds six months but the employee has either a contractual or a statutory right to reemployment. If the leave exceeds six months and the individual does not have a contractual right to reemployment, the employment relationship would be deemed terminated on the first date following the six-month period.
Employers should also carefully review and assess the impact of furloughs on employee participation in, and elections made under other benefit plans, including flexible spending accounts. A furlough may be considered a qualifying event triggering an employee’s ability to make mid-year election changes under a flexible spending account. Employers should notify furloughed employees of the impact of the furlough on the plans in which they participate and of their ability to make changes in plan elections such as transit benefits and employee stock purchase plans.
Employers considering furloughing employees must consider and comply with applicable federal, state and local wage and labor laws, as well as any individual contracts and employer policies.
The FLSA and similar state wage and hour laws require among other things, an employer to compensate employees for any work performed. As such, employers should take steps when furloughing employees to ensure that furloughed employees do not perform any work on behalf of the employer during the furlough period. These steps may include preventing employees from receiving or accessing their work emails, preventing access to employer facilities and ensuring that employees who are still actively working and may try to contact furloughed employees are made aware that they should not contact furloughed employees concerning work-related matters.
Further, when determining which employees to furlough, it is important for employers to use objectively defined and non-discriminatory categories of employees, to mitigate arguments of disparate impact and retaliation.
Prior to placing any employees on furlough, employers should review all contracts and policies covering such employees, including employment contracts, employee handbooks and, with respect to unionized employees, collective bargaining agreements. These documents may contain specific terms regarding furloughs and employers should ensure that any employee furlough complies with the terms of its policies and agreements. Further, contracts may contain guarantees of annual compensation or terms of employment, and a furlough may give rise to a contract breach or trigger a right for the employee to terminate the employment relationship for “good reason.” Employers should also assess confidentiality and restrictive covenant agreements and how the employer intends to interpret and enforce these provisions, keeping in mind that furloughed employees remain common-law employees.
Under the federal Worker Adjustment and Retraining Notification Act of 1988 (WARN Act), employers with 100 or more employees are required to provide 60 days’ advance written notice to terminated employees in the event of a “plant closing” or “mass layoff.”
Under the federal WARN Act, notice obligations are not triggered if employees will be furloughed for fewer than six months. However, a furlough that exceeds six months or a reduction of hours by 50% for six months or more will constitute an “employment loss” and trigger WARN’s notice obligations. An employer implementing a furlough on account of the SVB Closure may believe that the furlough is short-term, but if conditions persist longer than expected, WARN requirements may apply.
The WARN Act does include an exception to the standard notice requirement for extensions of furloughs beyond six months resulting from business circumstances that were “not reasonably foreseeable” at the time of the original furlough event. To determine if the business circumstances were “not reasonably foreseeable,” “[t]he employer must exercise such commercially reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market. The employer is not required, however, to accurately predict general economic conditions that also may affect demand for its products or services.” In this case, the employer must provide notice “when it becomes reasonably foreseeable that the extension is required.” The employer bears the burden of proving that it appropriately relied on this exemption. If this exemption is not met, an extension of a furlough beyond six months may result in the original furlough event being treated as the event for which advanced notice was required, retroactively triggering the violation.
Several states that have adopted “mini-WARN” laws have similar exceptions for unforeseeable business circumstances to the WARN Act, such as New York. Employers should review the applicable local, state and federal notice requirements before furloughing any employees.
The effect of the SVB Closure is still evolving and impacted employers need to act swiftly to ensure compliance with applicable federal and state wage laws. Employers should also immediately communicate to employees any potential delayed timing for wage payments and potential impact on the employer’s compensation and benefit plans, and work with their third-party benefit providers to anticipate potential issues in maintaining and operating their benefit plans. We are closely monitoring developments related to the SVB Closure and will continue to update this alert as new developments unfold.
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Appendix – Summary of Select State Wage Laws |
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State |
Wage Payment Requirements |
Penalties for Non-Payment of Wages |
Tax Withholding Considerations |
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California |
Wages must be paid at least twice a calendar month on days designated as regular paydays. Exception: Employers may pay executive, administrative and professional employees once per month on or before the 26th day of the month in which the labor was performed if the entire month’s salary, including the unearned portion between the date of payment and the last day of the month, is paid at that time. Wages earned on and between the first and 15th days of any calendar month must be paid no later than the 26th day of the month during which the labor was performed. Wages earned between the 16th and last day of the month must be paid by the 10th day of the following month. Other payroll periods, such as weekly, every two weeks or semi-monthly, must be paid within seven calendar days of the end of the payroll period. |
Aggrieved employees can file suit for: (a)unpaid wages plus interest, (b)reasonable attorneys’ fees, (c) costs and (d) waiting time penalties. Wage claims can be submitted to the California Division of Labor Standards Enforcement (DLSE), which is investigated by the Labor Commissioner’s Office. Usually, a settlement conference is ordered to resolve the issues. Note that the Labor Commissioner’s Officer has no jurisdiction over independent contractors. California DLSE may also: (a) collect civil penalties of $50 for the initial pay violation and $100 for each later pay period violation, (b) issue citations and (c) award liquidated damages to employees in an amount equal to unpaid wages plus interest. Industry-Specific Differences Exist: Note that California has 17 different wage orders that apply to different employers based on industry and occupation (See California Industrial Welfare Commission (IWC)). While IWC is not currently in operation, the 17 wage orders remain enforced by the DLSE. Potential Officer/Director/Shareholder Personal Liability: Section 558.1 of the California Labor Code states that “(a) [a]ny employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work. . . may be held liable as the employer for such violation. (b) For purposes of this section, the term ‘other person acting on behalf of an employer’ is limited to a natural person who is an owner, director, officer or managing agent of the employer. . . .” |
All California payroll taxes are collected and administered by the California Employment Development Department (EDD). If payroll tax payments are paid late, the penalty imposed is 15% of the late payment. When underpayment or nonpayment is fraudulent, the penalty increases to 25%. Both Unemployment Insurance (UI) and Employment Training Tax (ETT) must be paid to the state quarterly, along with a payroll tax return (DE-9 and DE-9C), no later than the last day of the month following the quarter in question. For example, if the second quarter ends on June 30, a payroll tax return for an employer’s UI and ETT contributions must be filed no later than July 31. |
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Colorado |
A pay period in Colorado cannot exceed the longer of one calendar month or 30 days. An employer must pay employees no later than 10 days following the close of each pay period unless the employer and employee agree otherwise. |
On or after January 1, 2023, under Title8 of Colorado’s Revised Statutes, an employee succeeding on a claim for failure to pay wages is entitled to the amount of damages due and may recover the greatest of: (a)2x the amount of wages or compensation, (b) $1,000 or (c) if the employer’s failure to pay is willful, 3x the amount of wages or compensation due or $3,000. If an employer fully pays all amounts demanded by an employee within 14days after a written demand is sent or an administrative claim or civil action is sent or served, the employee is required to dismiss his action. Employers that do not pay within 60days of receiving an adverse decision from the Colorado labor division will incur additional liability, including the employee’s attorneys’ fees incurred in enforcing the division’s decision, a fine payable to the division equal to 50% of the amount that is owed, and an additional penalty payable to the employee equal to the greater of: (a) 50% of the amount that is owed or (b) $3,000. An employer that willfully or intentionally fails to pay wages or compensation is guilty of theft and penalized as: (a) a petty offense if the value involved is less than $200; (b)a class 2 misdemeanor if the value involved is $300 or more but less than $1000; (c)a class one misdemeanor if the value involved is $1000 or more but less than $2000; (d)a class six felony if the value involved is $2000 or more but less than $5000; (e) a class five felony if the value involved is $5000 or more but less than $20,000; (f)a class four felony if the value involved is $20,000 or more but less than $100,000; (g)a class three felony if the value involved is $100,000 or more but less than $1 million; (h)a class two felony if the value involved is $1 million or more. |
An employer will owe a penalty for any tax that is not paid by its applicable due date. The penalty is the greater of either $5 or 5% of the unpaid tax, plus an additional 0.5% for each month the tax remains unpaid, up to a maximum of 12%. Additionally, a collection penalty equal to 15% of the unpaid tax is also imposed if the employer fails to remit payment within the time provided by any notice and demand for payment. Interest also accrues for any late payment of tax from the original due date to when the tax is paid. The rate of interest depends on calendar years over which the deficiency is maintained. |
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Florida |
Florida labor law does not appear to have any laws on how frequently employees must be paid. |
In a sample notice to employees required to be posted by employers in Florida law Section 448.109, it states that “[a]n employee who has not received the lawful minimum wage after notifying his or her employer and giving the employer 15 days to resolve any claims for unpaid wages may bring a civil action in a court of law against an employer to recover back wages plus damages and attorney’s fees.” Additionally, intentional violations of minimum wage law may result in a $1,000 penalty payable to the state for each violation. The treatment of unpaid wages is consistent throughout the labor law, regardless of the cause of lack of payment. According to Section 448.110, an aggrieved employee may alert an employer of an intent to bring an action for unpaid wages, the employer then has 15 days to resolve the issue, at which point the employee can bring the claim. Successful claims are entitled to back payment, costs and attorneys’ fees, and may be entitled to payment of liquidated damages in the discretion of the court based on the intentionality of the violation. |
Florida’s state employment tax is a “reemployment tax” required to be paid by the employer, and not withheld from the employee. A late filing penalty is charged at $25 for each 30 days or fraction thereof that the report (remitting the reemployment tax) is delinquent. Florida law provides a floating rate of interest for late payments of taxes and fees due. |
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Illinois |
Except as otherwise provided in individual contracts and collective bargaining agreements, according to 820ILCS 115/3, employees are required to be paid semi-monthly, except for executive, administrative and professional employees (as defined in the FLSA), who are permitted to be paid monthly. Additionally, 820 ILCS 115/4 states that all wages earned during a semi-monthly pay period shall be paid no later than 13 days after the end of the pay period. For weekly pay periods, all wages earned must be paid within sevendays of the end of the pay period. Wages for executive, administrative, and professional employees must be paid on or before 21 days after the period in which they are earned. |
820 ILCS 115/14 provides that an employee who has not been timely paid can file a claim with the Department of Labor or in a civil action to recover unpaid wages as well as 5% percent of the underpayment amount for each month that the payment is late. Employees are also entitled to costs and attorneys’ fees. Employers who have been ordered to pay unpaid wages will also be charged a non-waivable administrative fee of up to $1,000 plus penalties calculated as a percentage of the unpaid amount for each calendar day the repayment is late. Potential Officer/Director/Shareholder Personal Liability: 820 ILCS 115/14 also provides that employers and agents of employers who are able to pay and willfully refuse or who falsely deny the amount due may be guilty of a misdemeanor and, upon repeated violations, may be guilty of a felony. “Employer” is defined to include “any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee, for which one or more persons is gainfully employed.” |
Tax penalties in Illinois are dependent on how late the payment is made. A penalty of 2% is assessed for days one through30 and a penalty of 10% is assessed for payments made more than 30 days late according to form 2022 IL-2210. |
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Massachusetts |
Hourly workers must be paid every week or every other week. Salaried employees may be paid weekly, biweekly, semi-monthly or monthly if the employee elects to be paid monthly. Employees who work five or six days in a calendar week must be paid within six days of the end of the pay period. Employees who work one to four days or seven days in a calendar week must be paid within seven days of the end of the pay period. |
Employees who have not been paid may file a claim with the Attorney General’s Fair Labor Division. Under the Massachusetts Weekly Payment of Wages Law, successful employees are entitled to 3x their unpaid wages and reasonable attorneys’ fees and costs. Potential Officer/Director/Shareholder Personal Liability: Any employer, contractor or subcontractor, or any officer, agent, superintendent, foreman or employee thereof, or staffing agency or work site employer who violates Massachusetts wage laws may be subject to criminal penalties, which includes: (a) for a first willful offense a fine of up to $25,000, imprisonment for up to a year or both a fine and imprisonment, (b) for a subsequent willful offense: a fine of up to $50,000, imprisonment for up to two years or both a fine and imprisonment, (c) for a first non-willful offense a fine of up to $10,000, imprisonment for up to six months or both a fine and imprisonment and (d) for a subsequent non-willful offense: a fine of up to $25,000, imprisonment for up to a year or both a fine and imprisonment. As an alternative to initiating criminal proceedings as described above, the attorney general may issue a written warning or a civil citation. For each violation, a separate citation may be issued requiring any or all of the following: that the infraction be rectified, that restitution be made to the aggrieved party, or that a civil penalty of not more than $25,000 for each violation be paid to the commonwealth, within 21 days of the date of issuance of such citation. Each failure to pay an employee the appropriate rate or prevailing rate of pay for any pay period may be deemed a separate violation, and the pay period shall be a minimum of 40 hours unless such employee has worked fewer than 40hours during that week. Massachusetts courts have found that certain officers and managers of an employer (including the president, treasurer and other similar positions that have control over the employer) may be personally liable. |
Failure to pay on or before the due date will result in an additional tax of 1% of the underpayment per each month the tax remains unpaid, with the maximum penalty of 25%. Employers who fail to pay the tax on time will also be charged interest at the federal short-term rate plus 4%, compounded daily. Employers with more than $25,000 in annual withholding liability who fail to make timely deposits of withholding tax are liable for a 5% penalty on the amount of any part of a tax payment or weekly deposit that was not paid on time. |
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New Jersey |
Employers must pay all wages due to employees at least twice per month, on regular paydays designated in advance by the employer. Bona fide executive and supervisory employees may be paid once per month, so long as a regular payday is designated in advance by the employer and the employee is paid in full during the month. N.J. Stat. § 34:11-4.2. |
The civil penalty for an employer’s first pay law violation is a fine of $500 to $1,000, imprisonment of ten to 90 days, or both. The penalty for a second or subsequent pay law violation is a fine of $1,000 to $2,000, imprisonment of ten to 100 days, or both. N.J. Stat. Ann. § 34:11-4.10. Employees may file a civil action for recovery of the full amount of unpaid wages, as well as liquidated damages equal to 200% of the unpaid wages, plus costs and reasonable attorneys’ fees as determined by the court. N.J. Stat. Ann. § 34:11-56a25. Potential Officer/Director/Shareholder Personal Liability: For purposes of New Jersey’s pay laws, the officers of an employer and agents managing the employer are deemed to be the employers of the employees of the employer. Accordingly, the penalties described above can be assessed on such individuals. N.J. Stat. § 34:11-4.1(a). |
Employers pay employment taxes quarterly, monthly or weekly, depending generally on the aggregate amount of taxes withheld. The late payment penalty is 5% of the balance of tax due and paid late. In addition, interest at 3% above the prime rate is imposed each month (or fraction of a month) on the unpaid balance of the tax from the original due date to the date of payment. |
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New York |
According to NY Labor Law Section 191, employees other than manual workers and sales commission employees must be paid no less than semi-monthly. Manual workers are required to be paid weekly and sales commission employees are required to be paid at least monthly. Note that certain employees are not covered by Section 191, including persons employed in a bona fide executive, administrative or professional capacity whose earnings are in excess of $900 a week. |
Employees who have not been paid timely may file a claim with the NY DOL. Awards for such claims to employees will be reimbursement of unpaid wages and costs (including attorneys’ fees) along with a sum of up to $50. Additionally, employees or the NY DOL Commissioner can seek liquidated damages of “no more than [100%] of the total amount of wages found to be due, except such liquidated damages may be up to [300%] of the total amount of the wages found to be due for a willful violation.” Potential Officer/Director/Shareholder Personal Liability: For fringe benefits and wage supplements, including health, welfare and retirement benefits, there is an instruction with respect to NY Labor Law Section 198c that states the following regarding personal and company liability: “any employer who is party to an agreement to pay or provide benefits or wage supplements to employees or to a third party or fund for the benefit of employees and who fails, neglects or refuses to pay the amount or amounts necessary to provide such benefits or furnish such supplements within [30] days after such payments are required to be made, shall be guilty of a misdemeanor, and upon conviction shall be punished as provided in [Section 198c]. Where such employer is a corporation, the president, secretary, treasurer or officers exercising corresponding functions shall each be guilty of a misdemeanor.” New York Business Corporation Law Section 630 provides that the ten largest shareholders of privately held corporations, including foreign corporations, “shall jointly and severally be personally liable” for wages or salaries due to any of its employees for services performed in New York. |
For non-willful failure (“without intent to evade or defeat any tax imposed by this article or the payment thereof”) to pay a tax, NY Tax Code Section 685(f) states that an employer will be liable for the amount of the tax and interest and an additional tax penalty will not be charged. For willful failure to pay a tax, NY Tax Code Section 685(g) states that an employer will be liable for the amount of the tax as well as an additional penalty equal to the amount of the tax plus any interest due. There are also penalties under New York law for untimely remittance of unemployment insurance contributions (12% per year on the unpaid balance and, potentially, interest thereon). |
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Pennsylvania |
All employers must designate in advance regularly scheduled paydays. The time between the end of the pay period and payday must not exceed: (a) the time specified in the employment contract, (b) the standard time-lapse customary in the trade or (c) 15 days. |
Employers are liable to a penalty of 10% of a bona fide wage claim if they fail to pay or make a satisfactory explanation to the Secretary of Labor and Industry within ten days after receiving notification of the claim. An employer who willfully violates any provision of the Wage Payment and Collection Law is also subject to (a) a fine not to exceed $300 or (b)imprisonment up to 60 days for each offense. If the employer is a corporation, the president, secretary, treasurer or officer exercising corresponding functions can be personally liable. Potential Officer/Director Personal Liability: Officers and agents of an employer who violate Pennsylvania wage laws are subject to a fine of between $100 and $500. Each of the following are treated as separate offenses: (a) each week that an employee is paid less than the proper rate, (b) each improperly paid employee, (c) each day that an employer or (d) corporate officer or agent, is noncompliant with this law or a related regulation. |
Failure to pay on or before the due date will result in an additional tax of 5% of the underpayment per month for each month the tax remains unpaid, with a maximum penalty of 50%. |
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Texas |
Non-exempt employees must be paid at least twice a month. Exempt employees have to be paid once a month. If wages are paid twice a month, each pay period must consist as nearly as possible to an equal number of days. If the employer does not designate paydays, paydays are the first and 15th of the month. Exceptions: Employers must pay farm, factory and store employees weekly if employed by the day or week or monthly if employed by the month. |
Texas Payday Laws: An “employer” (as defined below) commits a third degree felony if it fails, after demand, to pay wages owed. An employer also commits a third degree felony if it intends to avoid payment, intends to continue to employ the employee, and fails (after demand) to pay those wages. A third degree felony occurs in each pay period in which the employee earns wages that the employer fails to pay. Conviction for third degree felony results in either or both: (a) imprisonment for 2-10 years or (b) a fine of up to $10,000. Potential Officer/Director Personal Liability: For purposes of Texas Payday law, an “employer” means a person who: (a) employs one or more employees; or (b) acts directly or indirectly in the interests of an employer in relation to an employee. Note that there is limited case law interpreting the definition of an “employer” for purposes of Texas Payday laws, but it is possible this could cover officers and directors. Minimum Wage Laws: An employer is liable to employees for: (a) unpaid wages, (b) liquidated damages and (c) attorneys’ fees and court costs. State Government Contracts: Note that additional rules apply to state government contracts. |
Under Texas law, failure to timely remit taxes can result in interest penalties on the late payments—1.5% of the amount for each month or portion of a month that the taxes are not paid in full. The total interest applied may not exceed 37.5% of the amount of taxes due at the due date. |
