Did you lay off or did you fire your employees? Did they quit without giving advance notice? In what state is your business located? Each of these questions affects when you will be required to give your employees their last paychecks.
Although “final pay” laws differ for each state, employers are generally required to pay departing employees their final paychecks within 72 hours, 15 days at the most, and sometimes immediately upon termination. Some states also require employers to pay out accrued, unused vacation days with the final paycheck.
While states like Alabama, Georgia, and Florida have no final pay statutes, if an employee is fired in the District of Columbia, they must be given their paycheck within 24 hours. However, if the same employee quits, their employer is allowed to wait until the next pay period, or seven days; whichever comes sooner.
Some states factor advance notice into their final pay laws. For example, if a California employee has given at least 72 hours advance notice that they’ll be leaving, they’re entitled to receive their check immediately; if they gave no notice, they aren’t entitled to their check for another three days. California employees who are fired are also entitled to immediate final pay.
Be advised that failing to comply fully with your state’s final pay law can be costly. Employees who believe they haven’t been paid all wages due to them upon termination may consult legal counsel, and if they do, may learn about other potential claims. These employees may also file wage claims with your state’s Department of Labor (DOL) or Superior Court, and if successful, may be awarded the wages claimed due, liquidated damages, and attorney’s fees. Depending on the nature of their complaint, their filing may also trigger a companywide audit by the DOL, which could result in additional wage claims and the imposition of civil fines and penalties.
What Does Final Pay Include?
Calculating an employee’s final pay depends on a number of factors including, but not limited to, whether the employee is paid on a salaried or hourly basis, and the company’s written policies regarding overtime; severance pay; payment of expenses, vacation, sick and personal days, and/or other paid-time-off policies; bonus and commission policies; and other pay and benefit arrangements. In some cases, if the employee failed to provide advanced notice of resignation, they may lose their right to accrued vacation pay.
Sick leave is not typically covered under state final pay laws, but some employers choose to pay it as a means of encouraging their employees to call in sick only when they’re legitimately ill. Another variable is severance pay, which is also rarely covered under final pay. Still, some employers award it as a means of insurance against potential lawsuits. More frequently, severance pay is mentioned in separation agreements and employee policy manuals, which act as implied contracts.
Be Sure to Classify Correctly
Retaining any portion of an employee’s final pay in order to ensure the repayment of an obligation, such as the return of company property, is deemed an unauthorized deduction. Another common and potentially costly mistake is misclassifying employees as independent contractors. While the definition of “employee” and “independent contractor” may differ under different statutes, the tests used to distinguish between the two overlap significantly. The most important factor is the extent of the control exercised by the employer/organization over the worker.
Although no one factor is conclusive, any of the following circumstances would suggest employee, as opposed to independent contractor, status:
- The individual was hired to perform duties also performed by employees
- The individual was supervised by an employee of the employer
- The individual worked exclusively for the employer
- The individual was paid consistently, regardless of the quantity of work performed
- The individual was reimbursed for business/travel expenses
- The individual worked onsite and used the employer’s equipment
- The individual worked for the employer for an extended period of time