By Jack Merrill
It seems simple enough – an employee earns wages, leaves the company, and gets a check for what’s due. More and more often, however, former workers are consulting attorneys and bringing lawsuits for money owed but unpaid on termination. Because the penalties for failing to pay wages are severe, employers must be well versed in Massachusetts laws that govern what they must pay and when.
First and foremost, companies need to know what’s at stake when wages go unpaid. Under the state’s wage payment law, individuals who fail to pay money due on time can face criminal penalties. The corporate structure provides no refuge; presidents, treasurers and other officers or managers can be criminally fined or sentenced to time in jail for violating the law. In addition, employers who fail to pay wages due can be assessed damages of three times the money owed to a worker, plus the legal fees accrued in forcing compliance with the law.
Problems with wage payments are most common when a worker leaves a company, whether by choice or upon termination or layoff. When an employee quits, wages must be paid on the next regular pay date; when he/she is fired, all wages due must be handed over immediately, before the worker leaves the property.
Employers often run into trouble in the latter situation, which is typically contentious to begin with. They either fail to pay undisputed wages, electing instead to await the next regular payday, or they don’t properly calculate and pay amounts due. The latter error is often caused by a company’s failure to understand that earned commissions, holiday pay, and vacation time constitute wages under Massachusetts law.
The vacation issue is so troublesome for employers that the Massachusetts Attorney General has issued an advisory alert on the subject. Though employers are not required to grant vacation time, they must pay over whatever they do award to their employees. When an employee leaves work, the company must determine how many vacation days are accrued and unused. It must make wage payment in lieu of these vacation days when it makes final payment of wages to the worker.
Procedures for earning and using vacations are generally left to the company. It can mandate advance notice, carryover rules, and the like, and can cap earned vacation accrual as it sees fit. Once vacation time is earned, however, it constitutes wages due and payable. Employers often have problems with this concept as they struggle to determine whether or not vacation days are earned for wage purposes.
The rule to apply here is simple: when in doubt, vacation time should be considered earned wages. The employee should be paid upon departure from the company, even if the company intended otherwise, since penalties for failing to make payment are automatic and the benefit of doubt in wage cases goes to the employee.
The same general policy should apply in commission situations. Where company policy dictates that commissions are earned upon a specific occurrence, the money owed should be paid in the regular course of business, regardless of whether the worker leaves the company before the payment date. Companies should be careful to maintain a strict distinction between commissions and bonuses, which could be subject to the wage statute under certain circumstances. Businesses should also be aware that there exists a separate commission statute that requires timely payment of money earned to independent contractors, and that it is improper to terminate a contract in order to avoid paying commissions or other money due to an employee or contractor.