7 Employee Pay Items Not Required by Federal Law

Your State May Require Some of These

Federal Time Off Laws
Time Off Not Required by Federal Law. JPM/Getty images

Question: What Employee Pay Items are NOT Required by federal law? 

Employers ask: "Do I have to pay employees for holidays?" "Do I have to pay severance pay?

Federal and state labor laws have many requirements for employers, but there are some of these pay items that you might think are required but are not. These provisions are not required under federal labor laws, and particularly they are not covered under the Fair Labor Standards Act (FSLA), which is administered by the Wage and Hour Division of the U.S. Department of Labor.

Some of these provisions may be required by state labor laws, so check with your state employment division to make sure if you must provide these payments or benefits to employees.

If you have both salaried employees and hourly employees, or full-time and part-time employees, you may provide these benefits to one group (full-time employees, for example) and not another group (part-time employees). Be sure to define exactly the number of hours per week necessary to be considered full-time. Be sure, in addition, that you are classifying employees correctly as exempt or non-exempt for the purpose of overtime pay. 

While these provisions are not required by federal law, many employees voluntarily provide these benefits in order to be competitive. In some cases, the provisions are negotiated or agreed to by the employee and employer, or with a union.

1. Paid Time Off. Federal labor laws do not require employers to provide time off or pay employees for

  • Vacations. Although paid vacation time is not required by federal law, many employers provide some paid vacation time to employees, based on years worked. Federal law also does not require that you accrue (accumulate) vacation time for employees or allow employees to carry over vacation time from one year to another.
  • Holidays.Most employers give employees time off for the major federal and state holidays, or they give additional pay for work on these dates. But, depending on your business type, you may require employees to work on a federal holiday or you may close your business for the holiday and not pay employees for that time.  
  • Severance. Unless severance pay has been agreed to in writing, severance pay in lieu of notice, or otherwise, is not required. HR Daily Advisor says, "There is no law, California or federal, that requires employers to offer any severance pay at all to departing employees." 
  • Sick pay. Federal law does not require that employees be paid for "sick time." Four states (Connecticut, California, Massachusetts, and Oregon), 18 cities, and one county in the U.S. require have paid sick time laws

2. Meals or rest breaks/rest periods. While federal law does not mandate these breaks, many states have laws requiring that hourly employees be given a rest break after a specified number of hours of work in a day. Federal law does state that short breaks must be considered as compensable (paid) time, and included in total hours worked for the purpose of determining overtime pay. 

3. Premium pay. Employers are not required to provide premium pay (overtime, usually) for work on weekends or holidays.

Salaried and exempt employees are usually not paid by the hour, so this provision would not apply to them in any case. Federal labor law does require that hourly employees receive time and a half (an additional 50%) applied to any hours worked over 40 hours in a work week.

Read more about possible changes to overtime pay for lower-paid exempt employees. 

4. Pay raises. Here's another case where there is no law that says you must give employees pay raises or benefits. But, if you want to keep employees from leaving for better pay, you should give them raises on a regular basis. Of course, be sure to let the employee know why a raise was - or wasn't - given. 

5. Immediate payment of wages to a terminated employee. Federal law doesn't require that employees be given a paycheck immediately upon termination, but many state laws do have this requirement.

Check with your state's labor department to find out what's required on termination. 

6. Pay stubs or W-2's. Employers must keep accurate and complete records for each employee, and specific information about employees is required by federal law. The Department of Labor doesn't require that employees receive W-2's, but this pay information is required by the IRS. You can find more information on paying employees and employee records in IRS Publication 15 (Circular E) Employer's Tax Guide. 

7. Limits on work hours in a day, or days in a week, including overtime hours, if an employee is at least 16 years old. Both the Department of Labor and states have child labor laws that restrict work for children under age 18. 

Should My Business Provide These Anyway? 

As noted above, even if it may not be required to give rest breaks to employees or to pay for holidays, you may find that not providing these benefits can make for dissatisfied employees. Creating a competitive employee benefits package includes checking the competition in your area and thinking about fairness as it relates to the types of work being done. 

Create an Employee Handbook

To be sure you are treating all employees equitably, it's a good idea to create an employee handbook and make sure each employee reads this document. Get help from an attorney in preparing this handbook, which should include the information above and other information on your company's policies, benefits, and work procedures. 

Disclaimer: The information in this article and on this site is intended to give you a general background on the subject; it is not intended to be tax or legal advice. Each business situation is unique, and laws and regulations change frequently. Consult with your tax and legal advisors before making business decisions.