Payroll continuity plan: What employers need to know
Tuesday, November 17, 2020
Disasters come in many forms. There’s fire, storm, tornado, flood, earthquake, pandemic, terrorist attack, cybercrime — just to name a few. When they strike, it’s important for employers to have a payroll continuity plan in place.
What is a payroll continuity plan?
A payroll continuity (or contingency) plan is a documented strategy for achieving your payroll objectives when natural or man-made disasters occur. The plan outlines feasible measures for managing payroll through the disruption.
What payroll obligations do employers have when disaster hits?
The Fair Labor Standards Act (FLSA) requires employers to pay covered nonexempt employees no less than the federal minimum wage, plus overtime pay for hours worked over 40 in a workweek. The U.S. Department of Labor, which oversees the FLSA, says, “These [minimum wage and overtime pay] requirements are not subject to waiver during natural disasters and recovery efforts.”
Under the FLSA, nonexempt employees must be paid only for hours worked, including during disasters. Exempt employees, however, are a different story. Exempt employees must receive their full day’s pay if they are sent home early because of a disaster. Moreover, they must receive their full pay if your business closes for less than one week — though you can deduct the missed time from their available PTO. If your business closes for a full week, you do not have to pay exempt employees for that week.
The bottom line is, no matter what crisis your business is facing, your employees are entitled to any wages/salaries owed to them. Note that many states have laws that mandate wage-payment frequencies, such as weekly, biweekly, semimonthly, or monthly. Employers cannot pay employees less frequently than the state-mandated timeframe.
Additionally, employers must perform all other legally-required payroll duties, including remitting and reporting payroll taxes — unless the government provides relief.
What if paychecks are delayed because of a disaster?
Some states require employers to give employees written notice of any changes impacting their paydays, including late payments caused by a disaster.
If a disaster will cause a delay in employees’ paychecks, employers should let their employees know (in writing) as soon as possible — even if the state doesn’t require written notice. The notice may, for example, say that the disaster has caused a setback in payroll processing, and when employees can expect to be paid.
Legalities aside, employees need their paychecks more than ever during times of uncertainty. A payroll continuity plan helps ensure timely payment — and one less issue for employees to worry about.
What goes in a payroll continuity plan?
The specifics of a payroll continuity plan varies by employer. Generally, though, the process involves conducting a payroll risk assessment and implementing disaster recovery mechanisms. Solutions may include:
- A prioritized list of payroll responsibilities, so you know what to tackle first in the event of a disaster
- Backup copies of payroll files
- Web-based technology that lets you run payroll from anywhere; all you need is internet access and a computer
- Online timekeeping system, so your employees can clock in and out remotely
- Manual payroll processing tools in case the internet or your computers are down — e.g., paper timesheets, calculators, paper checks, and hard copies of payroll registers showing employees’ previous wages and deductions
- Replacement personnel to fill in for payroll employees who cannot come to work
- Payroll staff safety, such as responses when dealing with problematic individuals
- Payroll evacuation procedures, such as in the event of a fire
- Multiple payment methods, for different disaster circumstances — e.g., direct deposit, pay cards, and paper checks
Of course, you can always partner with a credible third-party provider that will handle some or all of your payroll tasks, including during tumultuous times. Though the provider should have a business continuity plan, it’s a good idea to develop your own contingency strategies in case the disaster renders the provider out of service. A risk management specialist can help you create the contingency plan.
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