A recent HR fundamentals training we provided emphasized the confusion regarding when and how you must provide final wages to terminating employees.
When you terminate or lay off an employee:
- The final paycheck must be given to the employee at the time of termination or layoff.
Employees who quit with notice:
- The final paycheck must be given to the employee on their last day of work. “Notice” is at least 72 hours.
Employees who quit without notice:
- The final paycheck must be issued within 72 hours. An employee who provides less than 72 hours notice to quit can be mailed their final check (within that 72 hours), as long as the employee has agreed to that in advance and in writing. If not, then the check must be available at their worksite for pickup.
Auto deposit elections by employees are immediately terminated when an employee quits or is terminated. So the payment of wages must be done as stated above unless the employee voluntarily authorizes the final check to be deposited. However, that deposit is only effective when it is made (so actually deposited to the employees’ account) on the final day of work. That is not feasible for same day notice of terminations, or when you are not sure of the last days’ hours in advance and prefer to not estimate based on the employees’ work schedule (since that may result in an overpayment).
Because of these rules, it is important to plan terminations whenever feasible, so the final check can be coordinated with payroll. A key problem is that the rules have not changed to reflect the way many companies today handle their payroll, through third party payroll companies, PEO’s, outside bookkeepers or accountants, etc. Or you may have multiple business locations, with all accounting and payroll being done in one of those offices. Unfortunately, there is no leeway on the timing of termination payments for these situations, so the planning of terminations is critical.
Final paychecks must include all wages due through the time of termination. For the final work day, if you are terminating or laying off the employee, you must pay all hours worked but no less than ½ the hours the employee was scheduled to work that day. The final check must also include accrued vacation and any commissions, bonuses or piece rate earnings that can be determined earned as of the last day of work. Additional payments will need to be made as supplemental compensation are earned and due to employees.