Payroll

The Final Paycheck

March 21, 2018

Issuing an ex-employee their final paycheck doesn't have to be painful. Familiarize yourself with final pay laws to minimize possible liability and stress.

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The scenario: one of your employees is leaving the company. They may have resigned or the end of the relationship was not part of their plan. Either way, there is some settling up that needs to take place.

How soon after the employee leaves do you need to hand over the final paycheck? Are there laws you need to be aware so you don’t land in a heap of trouble? The answer is, pretty much.

Termination or Resignation?

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From a federal standpoint, you are not required to give the employee their final paycheck immediately.  However, state law often defines the time frame for delivering payment, though some states—Alabama, Florida, Georgia and Mississippi—have no statute on the books regarding issuing that last check. Typically, the guidelines are dependent upon the terms of the separation; they differ based on resignations and terminations. For instance, in the state of Colorado, terminated employees receive their final check immediately (or within 24 hours depending on where the payroll office is physically located). When the employee resigns, you issue the final paycheck on the next scheduled payday.

The last paycheck should include compensation for all time worked up until the separation. Include vacation or sick leave, and again state law is your compass. In states with no statute outlining final payment, company policy rules the process.

Deductions from Final Pay

Try not to make extraordinary deductions from final paychecks. It’s distressing to the former employee (especially when they are on the losing end of the separation) and it’s good form for you and your company to be generous and gracious. It fosters good will and helps to minimize legal liabilities.

Related:  Employee Termination Checklist: How to Make Sure You're Saying Goodbye the Right Way

Be aware, the Fair Standards Labor Act (FSLA) prohibits deductions from any overtime pay, but does allow reasonable deductions from regular pay. If you offer the employee severance, keep in mind that those payments are subject to the same withholdings as regular wages. And don’t forget to offer COBRA coverage.

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Commissions add another wrinkle to final settlement. By definition, they are wages, therefore the employee is entitled to them upon separation. Sometimes there is a delay until they receive payment for the sale from the client, making it impossible to accurately calculate the exact amount due to the employee. This is when you need to check your state’s laws to see if they outline specific requirements for final commission payment. Employment agreements or company policies outlining how commissions are paid out can help avoid a boatload of headaches when this situation occurs. It’s much better to have this all in place right from the get-go.

Sarah W
Sarah Willox, Payroll Operations Manager for Journey Payroll Colorado

Journey’s Payroll Operations Manager in our Colorado office, Sarah Willox, recommends; “Though you can’t always plan ahead, knowing the guidelines & regulations can make employment separation less stressful.  Have checklists on hand so nothing is forgotten, and separate emotion from the situation as much as possible.  Respect and professionalism are the key drivers when these inevitable situations occur. It’s what’s best for all concerned.”

If you have any questions on how to handle your termination check, please contact your Journey Payroll Specialist.  If you need assistance on the termination itself, please let us know if you would like an introduction to an HR Professional or Employment Law Attorney.  Our Journey team is here for you!

Related:  Employee Benefits Trends


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