Class action lawsuits, Private Attorney General Actions (PAGA), unfederated and state-by-state laws all raise the bar on employers needing to remain compliant with wage and hour laws.
As recent as July 2018, Starbucks was found guilty of violating wage and hour laws for not paying employees for post-closing activities such as locking the door and turning off the lights.
When offering a daily pay benefit at your company, here are the main Wage and Hour considerations to be mindful of.
Some daily pay programs are structured so that the employer is on the hook for deducting the amount of advances from the employees’ final pay on payday. While this may seem similar to other types of deductions such as healthcare, it is actually quite different.
In 14 states (including California and New York), deducting advance wage amounts is an illegal wage deduction. Additionally, it is ambiguous in an another 9 states.
Some vendors may try to get around this restriction by directly debiting the employees’ bank accounts. Proceed with caution! While it may be perfectly legal, offering a program that relies on a vendor directly debiting your employees’ accounts will only lead to HR and payroll headaches.
In addition, it feels too close to a payday loan, where the lender continues to debit the employees’ account until it is paid back.
While not specifically a wage and hour requirement, tax compliance is a closely related topic.
If the company is funding the advances itself, it is required to file employee withholding taxes. This is because the IRS views company funded advances either as (i) payroll or (ii) loans.
Under the assumption that the company does not wish to make a loan to its employees, the only alternative is payroll which requires a daily IRS withholding, assuming the company wishes to remain in compliance.