How and when do you pay an employee’s final paycheck?
Employer Terminates the Employee
If you terminate an employee, all wages and accrued vacation (or PTO) earned but unpaid are due and payable immediately. You can’t ask or require an employee to wait until the next regular payday for his/her final paycheck. You cannot withhold a final paycheck. It is illegal to withhold a final paycheck to induce the former employee to:
- Return tools, computers, keys, etc.
- Pay back money that he/she owes you
- Turn in expense reimbursements forms
Failure to pay the employee all earned and unpaid wages at the time of termination, you can be assessed waiting time penalties.
Some employers routinely suspend employees before termination to have time prepare a final paycheck. Unless you are legitimately conducting an investigation, you can be penalized for a willful failure to pay final wages on time.
Terminated employees must be paid at the place of termination. If you aren’t prepared to deliver the paycheck at the moment you say, “You are terminated.” Otherwise you must pay the employee up until the date that he/she will actually receive their final pay.
If an employee quits with more than 72-hours notice or more, you must pay all wages and vacation (or PTO) earned but unpaid on the last day of his/her work (unless you decide to terminate the employment early, then see above).
If an employee quits with less than 72-hours notice, you have up to 72-hours to prepare and deliver the final paycheck with all wages and vacation (or PTO) earned but unpaid.
Unless the employee who quit specifically requests payment by mail, you may hold his/her final paycheck until it is picked up. Mailing the final paycheck without the employee’s request could subject you to waiting time penalties.
Other Payments and Final Pay
Expenses are not considered wages and do not need to be paid with the final paycheck. They may be processed and paid on the normal schedule.
Commissions are considered wages but they may not need to be included in the final paycheck. Commission agreements should spell out how and when commission payments are made and those payments should continue to be paid to ex-employees according to the agreement. Consult legal counsel about this issue and your specific commission agreement.