On Friday, March 10, the Federal Deposit Insurance Corporation announced that it had closed the Silicon Valley Bank and taken control of its deposits. In its announcement, the FDIC said that insured depositors would have access to their deposits no later than the following Monday morning, March 13. However, the FDIC limit for insuring deposits is $250,000, significantly below what most customers of SVB had on deposit.
Because of the FDIC action, employers who used SVB deposits to fund their payrolls had to consider other options for meeting their payroll needs such as loans, furloughs, and late payments. Employees whose paychecks were direct deposited into SVB accounts would not have received their paychecks on March 10.
In Massachusetts, hourly workers must be paid every week or every other week. The deadline to pay depends on the number of days that an employee works during one calendar week. If the employee works 5-6 days, he or she must be paid no later than six days after the pay period ends. If the employee works 1-4 days or 7 days, he or she must be paid no later than seven days after the pay period ends.
Employees who resign must be paid in full on the next regular payday after the last day worked or, if there is no regular payday, by the first Saturday after their last day worked. Employees who are fired or laid off must be paid in full on their last day of work.
Salaried employees may be paid weekly, biweekly, semimonthly, or, if the employee requests, monthly. Salaried employees who work five or six days a week must be paid within six days of the end of the pay period. All other employees may be paid within seven days of the end of the pay period.
Employees who are not paid according to the above deadlines may recover three times their late wages, even if the employer pays the employee before a lawsuit is filed.
Here are some measures that employers may consider if they are facing payroll obligations and their funds to make payroll are in a failed bank:
- If you are using a payroll company to calculate and distribute your payroll, ask the company where it deposits the funds and how it would respond to a potential failure at that depository.
- If your payroll amount exceeds the FDIC insured limits, consider having alternative funding sources available.
- Follow stories of potential bank closings closely so that you can act quickly to move payroll funds to a different depository if need be.
- Let your employees know what you are doing to ensure that they will be paid, and paid on time.
- Consider a bridge loan if funds needed for payroll will not be available.
- Be aware of Massachusetts laws regarding pay dates, and the requirements of the Internal Revenue Service and state authorities for making payroll tax deposits.
- If reduced work schedules or layoffs are necessary, make sure you comply with the federal Worker Adjustment and Retraining Notification Act and applicable state law.
Employers should not use withheld federal payroll taxes to fund the payroll. Employers who willfully fail to pay their withheld federal payroll taxes may be subject to a recovery penalty, which is equal to 100 percent of the tax.