In the wake of the recent news of bank failures, businesses—and their investors—are rightly concerned about the implications of a missed or delayed payroll. Let’s look at those implications, and strategies for minimizing risk.

Obligation to Make Payroll

Under federal and most state laws, employers have both timing-of-pay and frequency-of-pay obligations. Under most of these laws, wages earned in a particular workweek must be paid on the regular pay day for the period in which such workweek ends. Under some of these laws, payment of certain kinds of wages (e.g., overtime wages) can be delayed until the following regularly scheduled pay day, but only if the wages cannot be computed in time with reasonable diligence. Here, however, the issue is likely not one of computation—but of availability of funds.

Consequences

Employees who do not receive timely payment of wages can sue, and can seek not only their unpaid wages, but liquidated damages equal to 100% (and in certain states 200%) of the amount of wages not timely paid. In many jurisdictions, civil penalties and attorneys’ fees are also available to prevailing plaintiffs in wage lawsuits. Unfortunately, the wage laws do not provide a defense based on lost access to payroll funds. In addition, while an employer may have rights or claims vis-a-vis their banks or insurers, the employer is the entity with responsibility for compliance with wage and hour laws, and third-party liability won’t absolve the employer of its...

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