A Bi-Monthly Payroll May Lead to Overtime Violations

A Bi-Monthly Payroll May Lead to Overtime Violations
From the January 2010 Riker Danzig Labor and Employment ALERT

Employers who compensate their overtime-eligible employees on a bi-monthly basis may unknowingly be violating New Jersey's wage and hour law.

While New Jersey's wage and hour laws permit employers to pay employees twice a month, the law also requires employers to pay employees all wages earned in a given pay period within ten business days of the last date in that pay period. N.J.S.A. 34:11-4.2. Unfortunately, these two time frames do not always correspond with one another when it comes to compensating employees for earned overtime.

Employers may prefer paying employees bi-monthly instead of bi-weekly to reduce payroll costs. However, in order to legally use this payroll method, employers may practically have to issue payroll checks before the total amount of overtime for a pay period can be calculated and later include any earned but unpaid overtime in the next bi-monthly paycheck. Because paychecks for the next pay period may be issued more than ten business days after the end of the previous pay period, these delayed overtime payments would be untimely and would therefore expose an employer to liability in the event of a DOL audit.

Employers can avoid this issue by adopting alternative legally compliant payroll practices. One option is to pay employees every two weeks, or every ten business days, instead of bi-monthly. If employees are paid every ten business days, overtime that is earned but cannot be calculated by the end of a pay period can still be timely paid to the employees at the end of the next pay period. Because overtime must be calculated on a weekly basis, the added advantage of bi-weekly pay periods is that it is easy to calculate the amount of overtime due if each pay period spans two entire workweeks.

Another option for employers who wish to maintain a bi-monthly payroll system is to wait up to ten business days from the last day in a pay period to actually pay employees for the total amount of wages earned in that pay period. This gives employers additional time to calculate the total amount of wages earned in a given pay period, including overtime, and then pay this amount all at once. However, because overtime must be calculated for each individual workweek, bi-monthly pay periods can make it more difficult to calculate the amount of wages due for pay periods that end in the middle of a week and thus span two separate pay periods.