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Payroll & Taxes

10 Situations Employers Must Be Ready For in the Payroll Process

Tonya Fletcher SPHR, SHRM-SCP
by Tonya Fletcher SPHR, SHRM-SCP on April 16, 2019

payroll-complexitiesEmployers who have ventured into the payroll process are probably already aware that it can be extremely complicated. Calculating payroll taxes, managing deductions, navigating payroll software and keeping up with payroll reports are just some of the headaches that surround managing payroll. In addition, employers can run into conflicts with federal and state labor laws, which can lead to wage violations if not handled correctly. Here are answers to 10 situations employers must be ready for in the payroll process.

Situations Employers May Encounter During the Payroll Process

1. ABC Company has a policy that employees must receive prior approval before working overtime. Jane Doe is an employee who works three hours of unauthorized overtime. Does ABC Company have to pay her for the overtime?

Yes, under the Fair Labor Standards Act (FLSA) and many state laws, employers are required to compensate a non-exempt employee for all time the employee has performed work, even when the work performed was not authorized or approved by the employer. Although the employee must be paid, an employer may choose to discipline the employee for violating a company policy to gain prior authorization for overtime.

2. DEF Company has workers who drive to and from work sites. Does the company have to pay them for drive time?

Yes, travel time from one workplace to another during the same workday counts as hours worked. When travel time is considered hours worked, that time must be factored in when determining any overtime pay. Time spent traveling from home to the regular worksite or the regular worksite to home is not considered compensable.

3. GHI Company has a written policy stating that employees must return company property in good condition when they terminate employment, or the company will keep the employee’s final paycheck. Is this against the law?

Yes. An employer cannot withhold a terminated employee's paycheck for any reason, even if it’s an employer’s economic loss due to the employee’s negligence. According to the FLSA, an employee’s final wages are due on the next regular payday. Depending on the circumstances and state law, employers may be able to deduct the cost of the equipment from the final paycheck of a non-exempt employee if they have written authorization to do so. However, there are some states that prohibit this type of deduction or have additional restrictions.

Keep in mind that the FLSA mandates that deductions to employee wages must not take their pay below minimum wage or interfere with overtime. An exception is when the deduction is for the employee’s benefit, such as a health insurance premium. As an alternative, an employer could invoice the employee for the cost of the equipment or file a claim in small claims court.

4. PQR Company requires employees to wear uniforms. Can the company deduct money from the employees’ paychecks to buy and clean the uniforms?

Yes and No. Employers may deduct money from employees to cover uniform costs or prorate deductions for uniform costs over a few paychecks if the employee is paid over the minimum wage, and any overtime pay is not reduced. However, some states do not allow this paycheck deduction.

5. John Doe, owner of JKL Company, would prefer his employees to have their paychecks deposited electronically. Can he require it?

No and Yes. In all states, employees may be paid by cash or check. In some states, employers can require their employees to receive payments electronically (either to a bank account or a pay card) with certain conditions. For example, employers cannot specify that employees use a specific bank. For a pay card, employees should receive one free transaction per pay period where they can withdraw their full pay without a fee. With or without electronic pay, an employer must still provide a written statement of wages paid.

6. If an employee quits with or without notice, how soon does the company have to pay their final wages?

The amount of time an employer has to provide a former employee’s final paycheck depends on their state’s laws. Some states appoint different time frames depending on whether the employee has quit voluntarily or was fired. No federal law requires employers to give former employees their last paycheck immediately.

7. Do employers have to pay employees for breaks?

Yes and No. Federal law requires an employer who grants employees a non-meal rest period of 20 minutes or less, to pay them for that time. In addition, some states require paid periods throughout a shift. Breaks granted by the employer for longer than 20 minutes can be unpaid.

The Affordable Care Act (ACA) requires employers to provide reasonable break time for an employee to express milk for her nursing child. Under the FLSA, employers are not required to compensate nursing mothers for breaks taken for the purpose of expressing milk. However, if employers provide compensated breaks, an employee that uses that break time to express milk must be compensated the same way other employees are compensated for break time.

8. Do employers have to pay employees for unused vacation time when their employment terminates? What about sick time?

Yes and No. There is no federal law governing if or when accrued vacation must be paid when an employee leaves the job. However, when there is a written company policy that dictates unused leave is due at termination, employers should pay it. Some states require an employer to pay out accrued vacation time upon termination of employment. Other states allow for its forfeiture.

An employer is not required to pay the employee for accrued sick leave when a job ends but can establish a policy to do so. PTO days are treated the same as vacation days, in terms of employment law.

Whether accrued leave time is due at termination depends on two factors: company policy and the state’s specific laws. Employers should document their company policies with clear and consistent language so employees understand what they are entitled to receive when their job is terminated.

9. MNO Company requires employees to punch in and out by using a time clock. If an employee clocks in ahead of his or her scheduled shift to “ready” their work area, does the company have to pay them?

Yes. Pre-shift preparation time is considered work time and non-exempt employees must receive compensation for this time. Even though the employee is choosing to come in early, he or she is engaged in activities that are job-related. Therefore, the time is compensable. Employees should be instructed to clock-in before performing any work and discouraged from performing any work before the start of a scheduled shift.

10. STU Company is getting ready to hire a handful of teenagers for the summer months. Must the young workers be paid minimum wage?

Yes. There are very specific federal and state guidelines for youth workers. The FLSA allows employers to pay a youth minimum wage of not less than $4.25 an hour to employees who are under 20 years of age during the first 90 consecutive calendar days after initial employment. After that, their pay must be raised to no less than the applicable minimum wage. State or local laws may require higher minimum wage standards.

Student learners are a different category of youth workers and are paid at 75 percent of the standard minimum wage. Employers who choose to employ student learners must be authorized by the DOL and hire employees who meet very specific criteria.

Additionally, minors (those under 18 years of age) are restricted in the times of day they can work, the number of hours per week they can work and what jobs they can perform.

Whether you’re hiring your first employee, navigating a complicated payroll system or confused about federal taxes, FrankCrum can help. As a Professional Employer Organization (PEO), FrankCrum provides payroll services along with sound HR advice, employee benefits and workers’ compensation insurance. Call 800-277-1620 to learn more.

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Tonya Fletcher SPHR, SHRM-SCP
Tonya Fletcher SPHR, SHRM-SCP

Tonya is the Labor Compliance Manager at FrankCrum. In this role, she leads the FrankAdvice team of HR consultants and manages the delivery and content of best practice HR information to client owners and managers. When she’s not at work, Tonya enjoys international travel.