So you’ve determined the employees who will be included in the layoff and determined any WARN obligations . . . now what? While its often brushed aside as an administrative exercise, employee final pay is a significant action that is full of traps for the unwary. Governed by the Texas Payday Law, failure to properly provide final pay can subject a company to civil liability of up to $1,000 per violation, and, if intent is shown, criminal liability. Fortunately, the Texas Payday Law provides guidance on how to handle a number of common questions regarding final paychecks.
Timing of Final Wages. Employers must pay employees who are involuntarily terminated within six calendar days of discharge. Beware of automatic pay procedures that default to payment on the next regular payday. While payment on the next regular payday is allowed for voluntary terminations, for RIFs, final pay is required within six calendar days.
Fringe Benefits, Commissions, and Bonuses. An employer should follow its own written policies and agreements regarding commissions, bonuses, and fringe benefits (i.e. PTO, holiday pay, sick leave pay). An employer does not have to accelerate these payments. Rather, under the Texas Payday Law, wages paid out for fringe benefits, bonuses, and commissions are due according to the terms of the applicable employment agreement. So, if a commission contract includes an acceleration clause, then the employer must accelerate payment accordingly. By the same token, employers do not have to make payments for such benefits if the agreement states that the benefits are forfeited if the employee is no longer employed on the applicable payment date.
Withholdings. Even if an employer believes it has good reason for withholding an employee’s final paycheck, it is usually a violation to do so. The typical scenario involves an employee who refuses to return company property (laptop, cell phone, etc.) at the time of termination. Even though the employer has a right to that company property, it cannot simply hold the employee’s final pay hostage. If an employer is concerned about having company property returned, it can sign agreements with employees that limit employees’ rate of pay during the final paycheck, and specify that the employees will be paid their regular rate of pay when all company property is returned. Companies that take this approach must still pay at least minimum wage to employees within the applicable deadlines. Without such an agreement, employers generally cannot deduct wages for the unreturned property or withhold final paychecks.
Independent Contractors. Notably, the Texas Payday Law does not apply to independent contractors. However, companies should consider paying discharged independent contractors according to the same deadlines as employees. Plaintiffs’ lawyers frequently challenge whether workers have been misclassified as independent contractors. Additionally, if the Texas Workforce Commission, which is tasked with enforcing the Texas Payday Law, determines that the worker is an employee, plaintiffs’ lawyers might begin investigating other potential pay practice violations that hinge on workers’ status as employees or independent contractors.