Employers are required by the Fair Labor Standards Act (FLSA) to make prompt payment of all wages. For good or bad, the FLSA does not define what prompt payment means. They generally leave that to the states. As such, there are numerous options. Employers can pay weekly, biweekly, and semi-monthly. Some states also allow monthly.
As an employer, you might be wondering if you can change your payday. BenefitMall says yes, you can. But there are some conditions set forth in a 1998 court case that must be met.
Rogers vs. City of Troy New York is a Circuit Court case that is relied on heavily to determine when employers are allowed to change their paydays. The case is not always applied to litigation arising from a company’s decision to move its payday, but it is considered the standard.
The case sets forth the following four conditions that must be met in order to legally move a payday:
1. It Must Be for a Legitimate Business Reason
The court found that companies must have a legitimate business reason for changing payday. This portion of the ruling was intended to make it clear that employers cannot arbitrarily change payday without reason. That doesn’t seem to be a big problem today, but the case was decided 21 years ago.
One example of a legitimate business reason is a change in accounting methods. If a company switches to a new accounting method that would be better served by changing the company payday as well, a legitimate case can be made for initiating the change.
2. It Must Be Permanent
The second condition found by the court is that the payday change must be permanent. In other words, a company cannot continually change its payday in order to avoid paying wages promptly. They must choose a new payday and stick with it.
This is not to say that the company could not change its payday again a few years down the road. This provision is simply one that prevents frequent changes for the purposes of avoiding paying employees on a set schedule. Certain industries were prone to this sort of practice prior to the court’s ruling.
3. It Must Not Cause an Unreasonable Delay
The third condition could very well be the most difficult to satisfy. The provision states that changing the company payday must not cause an unreasonable delay in distributing upcoming paychecks. For example, an employee used to getting paid every week at the close of business on Friday might find a sudden switch to semi-monthly pay unreasonable. That employee would have a legitimate case.
This sort of thing is not usually a big problem today given that most employees wait at least a week to get paid. Some wait two weeks when you factor in the time it takes to run payroll as compared to the schedule of actual hours worked. The big problem is that ‘unreasonable delay’ has no legal definition.
4. It Must Not Be to Circumvent Pay Requirements
Finally, any change of payday must not be implemented in order to circumvent normal pay requirements. Paying overtime provides the perfect illustration. Federal law requires overtime be paid to all hourly workers who work in excess of 40 hours in a given pay period. A company cannot shift payday in order to redefine the pay period and thus avoid paying overtime.
It is possible to switch your company’s payday provided all four requirements outlined in Rogers vs. City of Troy New York are met. Failing to meet those requirements could lead to litigation.