Employee Termination Checklist: Steps to Consider

One of the most difficult aspects of being an employer is terminating an employee. At times, it's a necessary decision for the best interests of the business, but it requires special care. When faced with an employee termination, consider using a checklist, such as the one provided here, to help you manage the employee termination process.

  Review the decision carefully. 

Make sure more than one individual is involved in the employee termination decision and carefully examine the facts and circumstances at-hand. Your decision must be job-related and should be supported by relevant documentation (such as discipline notices and performance reviews). Termination decisions should never be based on an employee's protected activity, such as filing a discrimination complaint or taking job-protected leave. If the employee's performance is the issue, consider whether you have given them a reasonable opportunity to improve. Additionally, you generally want to ensure the decision is consistent with your company policies and how you have handled similar situations in the past. Consult legal counsel as needed.

  Prepare for the meeting.  

Once you have made the decision to terminate the employee, schedule a time and place for the termination meeting. Hold the meeting in private but plan to have a witness present. Think carefully about what you plan to say, be straightforward and provide support for your decision. Give the employee an opportunity to respond but make clear that the decision is final. Avoid saying anything false or misleading in an attempt to soften the blow.

 Document the reason for separation.  

Document the reason for termination of employment and the effective date and keep a record in the employee's personnel file. If the employee's termination is a result of misconduct or performance issues, make sure you keep records supporting your decision (such as past performance reviews or disciplinary notices).

 Comply with final pay requirements. 

Under federal law, final pay is generally due by the next regular payday, but many states require final pay sooner. In some cases, this time frame differs depending on whether the employee initiates separation (voluntary termination) or the employer initiates separation (involuntary termination). Here is an example:

Texas: For involuntary terminations, final pay is due within six days of the date of termination. When an employee quits or resigns, they must be paid in full no later than the next regularly scheduled payday after the effective date of the resignation or retirement.

Whether the employee’s final paycheck must include pay for earned but unused vacation time depends on the state and company policy. States generally handle unused vacation and paid time off in one of three ways. Check your state law to determine which one applies to you.

• Employers must pay employees for unused vacation time at the time of separation;
• Employers can exclude unused vacation time from final pay, if they have a written policy that explicitly states employees will not be paid for any accrued, unused time upon separation; or
• Employers can exclude unused vacation from final pay, unless they have a policy that says otherwise.

Most sick leave laws don't require employers to pay employees for accrued, unused sick leave at the time of separation. However, if you bundle all leave, including sick leave, into a single Paid-Time-Off (PTO) policy, your state may apply the same rules as it does for accrued, unused vacation/PTO (which could require payout upon separation). Check your state law to ensure compliance.

Many states also have rules about the location and method for final pay. Check your state law for details.

For example, in California, the employee must receive their final pay at the place of discharge and at the time of discharge in the case of an involuntary termination. When an employee resigns or retires and gives at least 72 hours notice, final pay must be paid at the time of quitting. California requires that employees receive their final pay at the office of the employer in the county where they worked. Employees who quit or retire without providing 72 hours notice  are entitled to receive payment by mail if they request and designate a mailing address. The date of the mailing constitutes the date of payment for purposes of the requirement to provide payment within 72 hours.  In California, for both voluntary and involuntary terminations, an employee who has authorized final pay by direct deposit may receive final wages in this manner provided the other final pay requirements are met.

  Provide benefits information. 

If the employee is enrolled in group health insurance sponsored by your company, separation may entitle the employee to health insurance continuation (or "COBRA"), which triggers certain notice requirements. Work with your health insurance provider to ensure compliance. If the employee is enrolled in a company retirement plan, you should also provide information on their options after leaving (such as cash out, roll over, or keeping the plan as-is).

 Furnish state-required forms and notices.  

Several states require employers to provide a separation notice detailing, among other things, the reason for, and date of, the separation. In some cases, these notices are given to the employee, but some states require employers to send the notices directly to the state unemployment agency.

Some states also require employers to provide written information about unemployment insurance benefits or an unemployment insurance pamphlet to employees at the time of separation. Employers may also be required to provide notices about certain other benefits. Check your state requirements to ensure compliance.

 Ensure return of company property. 

As soon as you notify the employee of your decision, go with the employee to their workspace so you can start collecting company property. Use a Receipt of Company Property or similar form to track company-issued property that has been returned to you, such as company ID badges, cell phones, laptops, and keys. Take necessary steps to disable building codes and access to computers and confidential data.

Employers are prohibited from withholding an employee's final paycheck because of unreturned property. While withholding an employee's final paycheck is not allowed, there are some cases in which deductions may be permitted under federal law. For non-exempt employees (employees who are entitled to minimum wage and overtime), the Fair Labor Standards Act (FLSA) permits deductions for unreturned equipment as long as it does not reduce the employee's pay below the minimum wage and does not cut into any overtime pay. Some states prohibit this practice or have additional requirements, so check your state law before making a deduction. Deductions for unreturned equipment are never permitted for employees classified as exempt from overtime.

  Confirm mailing address. 

Make sure you have the correct address for sending the departing employee's Form W-2 and other pertinent information in the future. Ask the employee to verify their current address and to notify you if they have a change in address.

 Notify key staff and contacts. 

Prepare a list of the staff, key clients, and contacts that should be aware of the employee's departure. Explain who will be handling the departing employee's work responsibilities in the future and identify a contact who can address any questions they may have. Work with co-workers to identify the resources they need to handle any extra work as a result of the departure. In general, avoid disclosing the reason for the employee's departure.

 Prepare for an unemployment claim. 

In most cases, employees who experience a company-initiated termination are eligible for unemployment. However, in most states, if the employee was terminated due to "gross misconduct" (as defined by state law), they may be denied unemployment benefits. Eligibility rules vary, so check your state law for details. Once a former employee has filed a claim for unemployment benefits, you will receive written notice from the state unemployment agency.

 Retain records in accordance with the law. 

Federal, state and local recordkeeping rules require employers to keep certain records for a set duration. Rules vary by jurisdiction and some require employers to retain certain records well beyond the employee's length of employment.

For example, employers must keep I-9 forms for at least three years from the employee's date of hire or for one year following termination, whichever is later. Additionally, under certain federal nondiscrimination laws, employers must keep personnel records for at least one year from the date of an involuntary termination. If an employee files a discrimination claim, employers must keep these records until the claim is resolved. Check federal, state and local laws for more information on your specific recordkeeping requirements.

Conclusion

The employee separation process must be handled with extreme care to ensure compliance with federal and state requirements and a smooth transition for the company.