The Texas Payday Law appears simple in name, but it’s the most complicated employment law in the state for all privately owned companies. The purpose of the law is to enforce the wage agreements between an employer and employee when work is performed; prohibit illegal wage deductions; regulate timing on the payment of wages; mandate deadlines for final pay; and regulate a claim and appeal process for wage claims.
Let’s go down the path of payday to further explore the following topics to ensure privately owned companies in the state of Texas remain compliant with the Texas Payday Law :
- Mandated a payday schedule and distribution of paychecks;
- Regulated guidelines and limitations on any payroll deductions process;
- Regulation on final pay checks.
Paychecks & Payday Schedules
The law mandates that private employers (even if the company employs only one employee) must set pay dates of the 1st and 15th of every month, unless the employer has set another pay period in their policies. The law does provide an exception to this rule if the employees are classified as exempt under the Fair Labor Standard Act (FLSA); these employees can be paid once per month. The pay schedule must be posted with an explanation of how the paychecks will be distributed to the employees. There are no specific penalties for paying employees late (meaning not following the payday schedule). However, as with everything that is abused there is a breaking point: Excessive late payments to employees may lead to bonding requirements by the state. Keep in mind that the employer cannot hold paychecks pending the return of company equipment or the repayment of a loan from the employer.
The law also permits the following pay check distribution methods: hand delivery at work or at another place agreed by employee; registered mail (to arrive no later than payday); delivery to another designated adult with written authorization by the employee through the same methods listed above, or direct deposit if employee has a bank account.
Direct deposit must be voluntarily request by the employee. The law does not mandate that the employee have a bank account. The Federal Deposit Insurance Corp. prohibits employers from requiring that employees have a specific bank account.
Although, there are permissible payroll deductions, the law has regulated the process and enforced strict guidelines on how to handle payroll deductions (which is not obligatory to payroll taxes, court-ordered garnishments and deductions required by law ). The Texas Payday Law guidelines on payroll deductions, any deductions (minus the above exception deductions) must be legal and have written authorization by the employee. If some of the deductions bring the employees’ pay below minimum wage standards for that specific pay period, the employer would violate both the Texas Minimum Wage Act and the FLSA. To determine if your deductions push the employee’s pay below minimum wage, take the employee’s net pay, ignore deductions for payroll taxes and court-ordered deductions, and see if the balance is equivalent to the hourly minimum wage.
Here is an example of potential problems with payroll deductions. Texas employers are allowed to deduct an administrative fee of up to $10 per month for processing child-support garnishment payments. For a specific example, an employee has a child-support garnishment that need to be procesed for the current pay period. Once the administrative fee is deducted from this employee’s pay, the employee’s remaining balance is below minimum wage. This employer would not be allowed to process this administrative fee (or would not be allowed to process the full amount of the administrative fee) on this particular pay period, due to being in violation of the Texas Minimum Wage Act and FLSA.
Here is a breakdown of the calculation for the above example:
An employee worked 10 hours at $7.50 per hour ($75.00) and owed $15.00 in federal income taxes. Assume that the employee has incurred a $20.00 deduction for child support. Ignore the $35.00 of deductions (because these deductions are excempt from the violations), and see what happens if you want to deduct the $10 administrative fee on this paycheck. The result would be $75.00 minus $10 = $65.00. Then divide the $65.00 by 10 hours, which equals $6.50 per hour. Since $6.50 per hour is less than minimum wage ($7.25 per hour), the deduction is illegal, even if you have the employee’s written . www.TheHRSpecialist.com/TX
Biggest Tip: Always ensure you obtain your employees’ written authorization for the following additional deductions: meals and lodging, uniform-cleaning costs, union dues and any supplemental insurance or benefit-plan payments (such as life and disability insurance plans).
Final Pay Checks
Texas Payday Law covers the final payment of wages for employees. The employee’s final paycheck must include all the components of pay with the exception of any commission, bonus or fringe benefit payment. The commission and/or bonuses need to be scheduled for a later date with a written policy. The state of Texas does not require that state employers pay accrued, unused vacation or sick leave pay.
Best Advice: Ensure that your company has a policy developed to address the payout of accrued paid leave for exiting employees and for the conditions surrounding this situation.
The law does have strict deadlines on when the employer has to provide the exiting employee’s final paycheck. If the employee is exiting voluntarily (including resignations, job abandonment or retirement), the final paycheck is due on the first administratively possible payroll following the employee’s identified termination date from the employer’s company.
If the employee’s exiting reason is involuntary (including discharges, terminations, layoffs or mutual agreements to leave in lieu of being fired), the employer must provide the final paycheck within six days from the effective date of the discharge. If the employer is closed on the 6th day from the effective date of the discharge, the check is due on the next business day.
In order to remain compliant with the state ‘s most complicated employment law and avoid any legal ramifications from it, please ensure your company follows the Texas Payday Law.
Also, your company must post information about the law to ensure your employees are aware of the purpose of the law. You can obtain copies of the required notices (both English and Spanish available) at www.twc.state.tx.us/ui/lablaw/lablaw.html.