Final Day and Final Pay: Ensuring Compliant Payment of Final Wages upon Separation of Employment
Whether dealing with an involuntary termination or a voluntary resignation, separation of employment is often unexpected and—in many cases, unwanted—by the employer, the employee, or both. Even in the best of circumstances, an employer loses an important part of its workforce and must begin the process of hiring a replacement.
At the same time, employers must process the separation appropriately, including final payment of wages. How, when, and where an employer makes this payment depends upon various factors, including the nature of the separation, when it is communicated, and when the employee stops working.
When Must Final Pay Be Issued
Where an employer decides to terminate the employment relationship, the employer must issue final payment of wages to the employee on the employee’s last day of work.
Conversely, where an employee voluntarily resigns employment, and there is no written agreement expressly defining the period of employment, the timing of payment will depend upon the amount of notice the employee provides in relation to the employee’s last day of work. If the employee provides the employer with at least 72 hours’ notice of resignation, the employer must issue final payment of wages to the employee on the employee’s last day of work. If, however, the employee gives fewer than 72 hours’ notice, the employer must issue final payment of wages to the employee within 72 hours of the employee’s notice of resignation.
Where Must Final Pay Be Issued?
When an employer decides to terminate the employment relationship, final payment of wages must be made at the place of termination. When an employee voluntarily resigns employment, final payment of wages must be made at the employer’s office in the county where the employee worked; however, if the employee resigns without providing the employer with 72 hours’ notice, the employee may request final payment of wages be made to a mailing address designated by the employee as part of the request. In that case, the date of mailing will be considered the date of payment for purposes of the requirement to provide payment within 72 hours of the employee’s notice of resignation. In this case, employers should use a tracking mechanism of the mailing to ensure payment is delivered.
What Must Be Included in Final Pay?
Final payment of wages includes all wages earned through the last day worked, including straight time, overtime and double time, accrued but unused vacation and paid time off (PTO), earned commissions and bonuses, meal and rest period premiums, and all other forms of wages. Final payment of wages does not include unused sick pay unless otherwise stated in an employer’s policies.
What are the Penalties for Failing to Make Timely Payment of Final Wages?
An employer who willfully fails to timely pay final wages is subject to waiting time penalties. Waiting time penalties are calculated based on the employee’s daily wages (e.g., number of hours worked times rate of pay) for each day the wages remain unpaid up to a maximum of 30 calendar days. Penalties are calculated each calendar day (not workday) until paid up to the 30 calendar day maximum.
There are potential defenses against the imposition of penalties where, for instance, an employee actively avoids or refuses final payment of wages or where there is a good faith dispute as to whether wages are due so long as the employer pays the amount not in dispute. Employers should consult with legal counsel before relying upon these defenses.
Understanding these rules and establishing payroll systems that ensure timely and accurate payment of wages will not only make the employment separation process run more smoothly, but will also mitigate the risk of employee claims for penalties.
This legal update and any use of its information does not create an attorney-client relationship. Nothing contained on this website should be considered legal advice for any specific employer or employment situation. Consult legal counsel before taking any action as a result of information contained herein.
