You may have a good reason to change your payday, but before you make your move, be sure to take into account various rules and implications.
1. Fair Labor Standards Act
The FLSA requires prompt payment of wages but does not specifically address pay frequency or payday changes. However, a 2nd U.S. Circuit Court of Appeals case (Rogers v. City of Troy New York) held that employers can change their payday without violating the FLSA, provided the change meets these criteria:
- It is made for a legitimate business reason, such as a modification in your accounting method.
- It is intended to be permanent and is not being done in order to get out of paying wages promptly.
- It does not cause an unreasonable delay in payment.
- It is not designed to allow you to circumvent minimum wage or overtime requirements.
2. State laws
Many states have wage payment laws that mandate how often employees must be paid. So before switching your payday, check to see whether your state has established a minimum frequency.
If you’re simply changing the pay date instead of the frequency, you should still check state laws. (Some states require that employers pay wages within a specific number of days from when the wages were earned.)
Under the FLSA, nonexempt employees must be paid for work hours that exceed 40 in a work week. Overtime wages earned during the pay period are typically paid with regular wages earned during that same pay period — but be sure to check state laws, as a state may have its own payment criteria for overtime wages. You’ll need to ensure that the payday change does not cause any problems with the timing of overtime payment.
4. Direct deposit
Employees who are paid by direct deposit will need to be paid by the new pay date. This means coordinating with your financial institution to ensure timely deposits of payroll funds into your employees’ bank accounts.
5. Payday change notice
Employees expect predictable paydays, so any changes in the date or frequency should be relayed to them in advance. To avoid compromising employees’ financial planning, give as much advance notice as possible. Otherwise, you will find yourself buried in complaints, which could take considerable time to resolve and — worst case scenario — lead to rapid employee turnover.
Also, check state law for notification requirements. For example, in some states, employers must give new hires a written notice of their pay frequency.
To aptly communicate a payday change, you might send emails/memos and display notices on internal bulletin boards. It’s also a good idea to hold an all-staff meeting, as this will enable you to lay out details of the change plus answer any questions or concerns your employees may have.
If you have questions, contact an MCB Advisor at 703-218-3600 or click here. To review our business planning articles, click here. To review our personal financial planning articles, click here. To review our tax news articles, click here. To learn more about MCB’s tax practice and our tax experts, click here.