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The Harsh Consequences of Neglecting to Pay Your Employees

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    As a business owner, you have the weight of the world on your shoulders. That means that sometimes things slip.

    You might forget to respond to an important email or dial into a conference call. You could miss an important lunch date or fail to return a voicemail.

    One thing you absolutely cannot afford to neglect? Paying your employees.


    While the scenario might sound absurd, it’s more commonplace than you might think. It’s also riskier.

    Today, we’re taking a look at the kinds of legal consequences you can expect if you forget to pay your employees and assume your employees will work for free.

    Considering skipping out on this next paycheck? Read on to learn why that’s one of the most dangerous moves you could make as an employer.

    Your Legal Obligations to Pay

    Especially if margins are tight and money is slow, it might be tempting to skirt your responsibility to pay your employees. Yet, it’s important to realize that even if you’ve declared Chapter 11 bankruptcy , you’re still not out of the woods when it comes to compensating your workforce.

    Even if you don’t skip a payment altogether, you might consider other shady means of avoidance, including:

    • Delaying payments
    • Falsifying issues with the payroll system
    • Not paying terminated employees

    The only issue? In addition to being an immoral move, it’s also an illegal one.

    According to the Fair Labor Standards Act (FLSA), most employers in the United States are legally required to pay their employees at or above minimum wage. Moreover, a majority of businesses are also bound to the same responsibilities under state laws.

    In addition to setting the minimum wage, these laws also dictate the following:

    • When you must pay your employees
    • How often you must pay your employees
    • Whether or not you’re required to pay overtime
    • Which employees are entitled to overtime

    Ways You Could Fail to Pay Your Employees

    Sometimes, the issue isn’t as cut and dry as simply withholding an employee’s paycheck. In fact, you might fall into the category of “not paying” without fully realizing it.

    Let’s take a look at a few scenarios in which this could occur.

    Withholding Without Consent

    You cannot withhold even a portion of an employee’s wages without their expressed consent. 

    While there are certain withholdings that you’re legally required to take out (e.g., payroll taxes), those are legal. Deciding to cut their check by a certain percentage to save money isn’t.

    Withholding as Punishment

    There could be myriad reasons why you’re upset at an employee. Maybe they violated company policy, shared confidential information with a competitor or left on unsavory terms.

    Regardless, you owe them (in full) for the work they put in. You can reprimand them, but you still have to pay them.

    Withholding the Last Paycheck

    When an employee is terminated or decides to leave, you’ll normally have to issue their last paycheck on or before the next payday. Most of the time, this also means paying that employee for all overtime worked, even if you didn’t approve of it beforehand.


    Failing to issue this payment on time could be considered a breach of federal and state laws.

    Wage Complaints and Employment Agencies

    Think you can shortchange your employees behind their backs? Soon enough, these kinds of moves always reveal themselves, mainly because team members talk.

    If an employee discovers that they are not making as much money as someone in the same department and role, that’s grounds for a complaint.

    Or, someone could realize that they didn’t receive payment for a portion of their work. Besides regular pay, they might notice that they’re missing income for vacation pay or overtime pay.

    Sometimes, entire departments band together to issue a formal wage complaint, while other times it’s an individual effort.

    The Investigation Process

    Either way, when workers believe they are not being paid fairly (or at all), they can take those complaints straight to your state’s employment agency. From there, the agency can initiate a formal investigation into the claims. 

    If the agency determines that the employee is indeed being shorted, this could lead to a lawsuit against you. It could also mean losing your business license. 

    In addition, you’ll also be required to pay back any money you owe to the employee in question (known as “back pay”). Often, you’ll get slapped with additional fees and penalties in addition to the lump sum payment.

    Other Legal Actions Against Employers

    In addition to lawsuits and payments issued by the state employment agency, disgruntled workers could also take their qualms to a higher power: The U.S. Department of Labor.

    If an employee can prove that you violated the terms of the FLSA, they have four means of recovering the back pay they deserve. These include:

    • Contacting the Wage and Hour Division of the U.S. Department of Labor
    • Filing a lawsuit in tandem with the U.S. Secretary of Labor 
    • Filing a private lawsuit for back pay, damages, legal fees, and court costs
    • Requesting that the U.S. Secretary of Labor get an injunction to restrain you from violating the FLSA

    One caveat? These actions shouldn’t overlap.

    For instance, an employee cannot file a lawsuit under the FLSA if they’ve already received back pay since contacting the Wage and Hour Division. Along the same lines, an employee cannot file a private lawsuit if the U.S. Secretary of Labor has already filed one.

    Keeping Your Employees Pleased (and Paid)

    Even if the action is unintentional, there are circumstances that might cause you to neglect to pay your employees.

    To help combat this issue, make sure to keep detailed records of all the amounts you issue every paycheck. This data will be the first thing that officials will request if there’s ever a wage complaint against you. 

    Make it a point to be forthcoming and honest with your employees, and take the time to understand the legal ramifications for this monumental misstep.


    Need a little help understanding payroll law and other small business tax issues? Our team of experienced tax attornies is here to help. Contact us today to learn more and let’s connect. 

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