Since federal and state payroll regulations do not directly address the mailing of periodic payroll checks, any discussion of the subject has to include the Internal Revenue Service’s concepts of “constructive receipt” and “substantial limitation." The IRS uses the former as a way to determine for tax purposes when someone receives income and the latter to test whether that person had control of the funds.
Income is constructively received, the IRS states, “when it is credited to your account or set apart in any way that makes it available to you.” That does not mean a mailed pay check must be in the employee’s possession. If necessary, the employer must be prepared to prove it mailed the check in a manner that meets constructive-receipt guidelines. If the employer does not have proof that the check was mailed by the scheduled pay date, the IRS warns, there is a perception of noncompliance. This perception is based on the employee’s having a substantial limitation or restriction on his earnings.
If a company defines its paydays as the second and fourth Thursdays of each month, then the employee’s control of the funds should be in place at that time. Employees who are paid via direct deposit will not have substantial limitation to their earnings if the funds are available on the second and fourth Thursdays. If the funds are initiated in a way that makes the funds available after the second and fourth Thursdays, however, there is substantial limitation of control, and the employee was not paid in a timely manner.
State wage and hour laws address the timing of pay. When an employee initiates a claim regarding an undelivered payroll check, the state will verify compliance with constructive-receipt and wage-and-hour guidelines. As with the direct-deposit example above, if a check is mailed after the payday, the employee has a substantial limitation on her control of the funds. The delay in mailing the check triggers noncompliance.
The Department of Labor has not defined mailing requirements for final payroll checks; however, your state may have specific guidelines that should be addressed. In "The Employer's Legal Handbook," Fred Steingold writes that if an employer does not issue a final paycheck on time, it may have to pay damages to the employee as well as face state penalties.
If you are issuing final checks to employees in multiple states, make sure that you refer to the final check regulations for each state. Pay close attention to when the final check has to be delivered, the manner in which it is to be delivered and whether an affidavit of some type is required to mail the final check.
Payroll regulations do not specifically define laws for mailing payroll checks. This does not mean that an employer can be lax in mailing payroll checks in a timely manner or in the related documentation. It is important to adhere to the communicated schedule when mailing payroll checks. Doing so will prevent the risk of noncompliance.
- “Internal Revenue Service Publication 17, Your Federal Income Tax ;" Department of the Treasury, Feb 2009
- "The Employer's Legal Handbook 9th Edition;" Fred Steingold; 2009
Cheryl Frazier is a freelance writer with more than 12 years of business analysis and technical writing experience. She attended the University of California, Irvine and Pepperdine University and has provided business analysis consulting and technical knowledge content to such industries as construction, entertainment, health care, retail and technology.