Non-payment for Services as Employee or Contractor

What to Do About Non-Payment as an Employee or Contract Worker

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In difficult economic times, many employers find it difficult to make ends meet. They might find themselves needing to cut the pay of employees, or in some cases, they fail to pay non-employee workers and service providers, like freelancers and independent contractors.

Employees and contract workers have the right to expect to get paid, and it's difficult to know what to do when your paycheck doesn't arrive. Some possible remedies exist for employees and contractors to pursue when they are not paid for their work.

Employee or Contract Worker?

Employees and contract workers (independent contractors) are two different situations and each is discussed separately. Employees receive payment on an hourly or salaried basis and are under the control of the employer; contract workers work independently, often have contracts, and are paid by the job or project. Read more about the difference between an employee or contract worker.

It's important to know whether you are considered an employee or an independent contractor, especially if the company you work for is going through the process of bankruptcy  

Why Companies Don't Always Pay

It may seem obvious, but it's worth noting that two main reasons exist for businesses not paying:

  • In the case of non-payment of overtime, sick pay, or minimum wage, some employers may not be aware of the law or may choose to ignore the law to save money.
  • In most cases where businesses don't pay, it's because they don't have the money. This may be a temporary cash flow shortage or a more permanent situation such as a bankruptcy. In these cases, employees and contractors are not paid because there are other more pressing (to the business) uses for the money.

Unfortunately, when businesses don't have money, employees are often the last to be paid, rather than the first, such as in the case of bankruptcy.

Non-payment of Employees

One of the primary obligations employers have is to pay employees. Employers must pay a fair wage, must pay for overtime, and must pay immediately at the end of each pay period. Wage payments are part of the federal Fair Labor Standards Act (FLSA) and every state also has wage and hour laws.

If an employee feels he or she is not being paid correctly, the first step is to document the issue in writing to the employer. Spell out exactly what payments have not been made, such as regular wages, overtime or sick pay, for example. If the written request doesn't work, there are two ways to respond:

  • You can contact an employment attorney to help you get your money. This means you will have to pay the attorney unless you can get them to take a contingency (getting paid only when you win) or adding the attorney fees as part of the settlement to be paid by the employer.
  • You can contact your state employment agency or wage and hour department and file a claim.

In either case, though, you will have to go through a process and wait to receive any money you might be owed. This process can take months, unfortunately, and you have no guarantee that you will get paid.

Most employees don't have specific contracts, but this doesn't mean they don't have a legitimate claim against their employers. If you are considering a lawsuit or complaint, gather up documentation, including previous pay stubs, any letters or emails from the company promising payment, employee handbook, or anything that can help you substantiate your claim against your employer.

Non-payment of Contract Workers

If you are working for a business and you are not an employee, you are a contract worker. Some, but not all, contract workers have contracts. If you don't get paid for your services, begin by first writing to the business explaining the work you did and the payment you expect.

If you have previously been paid, that helps establish the "contract," and you must document all previous payments and keep any tax documents, like 1099-MISC forms showing previous payments.

If your attempts to get paid aren't successful, you can contact an attorney and attempt to sue for payment. Your documents will help with your case.

Small Claims Court and Non-Payment for Services

You may be able to take your case to small claims court. either as an employee or contractor. The amount of the claim (the amount you are owed) must be within the limits of claims for your state. But even if your case prevails and you get a judgment against the company, you may have a difficult time getting actual payment. Read more about the small claims court process.

Business Bankruptcy and the Order of Payments

If a business files bankruptcy, all claims for payment, including those claims by employees and contract workers, become part of the bankruptcy process and get paid in a specific order. If you find out that the business is bankrupt, you should contact an attorney and make your payment claim, but there is no guarantee that you will get paid. Read more about bankruptcy claim priorities.

The bankruptcy regulations treat employees and independent contractors in basically the same way in terms of their ability to collect money from a bankrupt employer. Both get up to 180 days of compensation, up to $10,000 (with restrictions on what defines an independent contractor). 

In short, if you are not paid by a company, either as an employee or contractor, there is little you can do to get paid quickly, or at all. Filing a claim as described above can help, but it won't do anything to speed up the process.