An Employer's Guide to Navigating the Payment of Wages and Garnishments, 0314 SCBJ, SC Lawyer, March 2014, #1

Author:Ashley P. Cuttino and Glenn M. Spitler III
 
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An Employer's Guide to Navigating the Payment of Wages and Garnishments

Vol. 25 Issue 5, Pg. 24

South Carolina Bar Journal

March 2014

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 Ashley P. Cuttino and Glenn M. Spitler III

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0"An ounce of prevention is worth a pound of cure."1 —Benjamin Franklin

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Employers large and small must abide by an abundance of laws that dictate how the employer-employee relationship is conducted. One area of the law often overlooked is how an employer pays its employees. A related area of the law often misunderstood is when and under what circumstances an employer must garnish an employee's wages. The mechanics of the payment of wages and wage garnishments can quickly get complicated and lead to employer liability if the employer does not follow a few simple rules.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The payment of wages

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The South Carolina Payment of Wages Act (Act) contains a broad definition of covered entities. An "employer" includes all persons and entities, both public and private, and any agent or officer of these entities. An "employer" does not include independent contractors, an employer of domestic labor in a private home or an employer employing fewer than five employees at all times during the preceding 12 months.2 A covered "employer" has an obligation to provide an employee with written notification of the employee's wages and working hours, place of payment and a list of itemized deductions from wages.3 This information is normally not difficult to provide. Employers often overlook an additional section of the law that requires seven days written notice to an employee if the rate or manner of wage payment will change.4 For the seven-day rule to be applicable, the change must be permanent. If a raise is given, the seven-day notice is not required.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Confusion can occur in regard to what is considered covered "wages" under the Act. The Act defines "wages" as "all amounts at which labor rendered is recompensed, whether the amount is fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the amount [.]"5 "Wages" has been defined to include vacation, holiday and sick leave payments "due to an employee under any employer policy or employment contract."6 This includes a variety of forms of compensation, including executive bonus plans and other compensation plans for highly paid employees and salespersons, but does not include funds placed in pension or profit sharing plans or severance payments.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The definition of wages, while broad, is not all-encompassing and has recently been disputed. In January 2013, the S.C. Court of Appeals decided Baugh v. Columbia Heart Clinic.7 In Baugh, two shareholder-physicians entered into non competition agreements with their corporate medical practice.8 The agreements stated that if the doctors left the practice and subsequently violated the agreement, they forfeited any money owed to them.9 The physicians left the practice, opened up a new practice, sought a declaratory judgment holding that the non compete provision was unenforceable, and claimed violations of the Payment of Wages Act for unpaid compensation and attorney's fees.10 The court held that because the noncompetition agreement was enforceable, the physicians had forfeited their rights to any compensation due under the agreement, which included shares of accounts receivable, unpaid draws and director's fees.11 The court concluded that these items are not "wages" as defined under the Payment of Wages Act.12

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The S.C. Supreme Court has also held that the South Carolina Payment of Wages Act does not apply to prospective wages, severely limiting potential damages under the Act.13 The Fourth Circuit has further limited the Act by determining that the Fair Labor Standards Act (FLSA) preempts the Act.14 Accordingly, an employee cannot bring FLSA and state payment of wages claims in the same lawsuit.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0An important area for employers to understand concerns the money owed to an employee upon separation of employment. Employers must pay separated employees either (1) within 48 hours of the time of separation or (2) by the next regular payday, which may not exceed 30 days.15 The employer must pay all wages that are "due" pursuant to the employer's policies and procedures. Pragmatically, the employer's policies and procedures must clearly define what wages are due upon an employee's departure, or else a court may find that the amount due is ambiguous and decide that the employee is owed more than the employer originally determined. The Act allows for a private cause of...

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