Table of Contents
- 1 Employee or Contract Worker?
- 2 Why Companies Don’t Always Pay
- 3 Laws Regulating Payment to Employees
- 4 How to File a Complaint as an Employee
- 5 Non-Payment of Contract Workers
- 6 Small Claims Court and Non-Payment for Services
- 7 Business Bankruptcy and the Order of Payments
In difficult economic times, many employers find it difficult to make ends meet. They might find themselves needing to cut the pay of employees or, in some cases, they fail to pay non-employee workers and service providers, like freelancers and independent contractors.
Employees and contract workers have the right to expect to get paid, and it’s difficult to know what to do when your paycheck doesn’t arrive.
Employee or Contract Worker?
Employees and contract workers (independent contractors) (including freelancers and at-home contractors) have different pay situations and legal protection for non-payment.
- Employees receive payment on an hourly or salaried basis and are under the control of the employer.
- Contract workers work independently, often have contracts, and are paid by the hour or project.
Why Companies Don’t Always Pay
It may seem obvious, but it’s worth noting that two main reasons exist for businesses not paying:
- In the case of non-payment of overtime, sick pay, or minimum wage, some employers may not be aware of the law or may choose to ignore the law to save money.
- In most cases where businesses don’t pay, it’s because they don’t have the money. This may be a temporary cash-flow shortage or a more permanent situation such as bankruptcy. In these cases, employees and contractors are not paid because there are other more pressing (to the business) uses for the money.
Laws Regulating Payment to Employees
Before you file a claim for non-payment of wages as an employee, you need to know where to file the complaint. You’ll need to do some research. Employee pay and some employee benefits are regulated by:
- Federal laws, through the U.S. Department of Labor’s Wage and Hour Division, and
- State labor laws, through state employment departments.
When federal and state laws differ, the law that benefits the employee is controlling. For example, some states have minimum wage laws that are different from the federal minimum wage. In these cases, the higher minimum wage applies.
Wage payments are part of the federal Fair Labor Standards Act (FLSA) and every state also has wage and hour laws. Employers must pay a fair wage, must pay for overtime, and must pay immediately at the end of each pay period. Other payments regulated by the FLSA include travel time, rest and meal periods, and on-call time. Other time off pay, including vacation pay, severance pay, extra time off for weekend or night work is not regulated by the FLSA but some states have laws regulating these payments.
Employers are not required by federal law to give former employees their final paycheck immediately, but some states require immediate payment.
How to File a Complaint as an Employee
Contact Your Employer First
If you feel you have not being paid correctly, the first step is to document the issue in writing to the employer. Spell out exactly what payments have not been made, such as regular wages, overtime, sick pay, or missed paycheck, for example.
Before you file a claim, gather documents, including the most recent paychecks, contracts you may have signed, and other instances of non-payment or late payment.
Inclue previous pay stubs, any letters or emails from the company promising payment, employee handbook, or anything that can help you substantiate your claim against your employer.
Then File a Claim with the Correct Agency
If the written request doesn’t work, there are two ways to respond:
First, try your state’s wage and hour department. The process will be different in each state. California, for example, has a specific process for filing wage claims that includes documentation, a settlement conference or hearing.
You may also be able to file a complaint with the Dept. of Labor Wage and Hour Department. This process is mostly for minimum wage or overtime complaints.
In either case, though, you will have to go through a process and wait to receive any money you might be owed. This process can take months, and you have no guarantee that you will get paid.
Non-Payment of Contract Workers
If you are working for a business and you are not an employee, you are a contract worker. Some, but not all, contract workers have contracts but independent contractors are not covered by federal or state employment laws.
If you don’t get paid for your work as an independent contractor, freelancer, or business person, begin by first writing to the business explaining the work you did and the payment you expect.
If you have previously been paid, that helps establish the “contract,” and you must document all previous payments and keep any tax documents, like 1099-MISC forms showing previous payments.
Small Claims Court and Non-Payment for Services
You may be able to take your case to small claims court either as an employee or contractor. The amount of the claim (the amount you are owed) must be within the limits of claims for your state. But even if your case prevails and you get a judgment against the company, you may have a difficult time getting actual payment. Read more about the small claims court process.
Another possible alternative for getting paid for your work is mediation. This process is non-binding and it involves working with a mediator to try to get a settlement. The American Arbitration Association has a Mediator Search Tool you might find helpful.
Business Bankruptcy and the Order of Payments
If a business files bankruptcy, all claims for payment, including those claims by employees and contract workers, become part of the bankruptcy process and get paid in a specific order. If you find out that the business is bankrupt, you should contact an attorney and make your payment claim.
The bankruptcy regulations treat employees and independent contractors in basically the same way in terms of their ability to collect money from a bankrupt employer. the Bankruptcy Code also grants certain employee claims “priority” status, thereby entitling covered employees to more favorable treatment than some—but not all—of the other interested parties in the bankruptcy case. Employee claims for pre‐bankruptcy wages, salaries, and vacation, sick, and severance pay, as well as unpaid contributions by the employer to employee benefit plans, are given priority over other unsecured claims up to a maximum amount.