When an employee leaves an employer, federal and state laws dictate when the employer must provide the employee with their final pay, where it must be delivered to, and what the pay must include. Here are some considerations about final pay.

Timing

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.

Note: Some states have separate final pay deadlines and other rules for commissions, bonuses, and other special situations.

Delivery

Many states have rules about the location and method for final pay. The following is an example.

California: In the case of an involuntary termination, the employee must receive their final pay at the place of discharge. When an employee resigns or retires, California requires that employees receive their final pay at the office of the employer in the county they had been performing labor. Employees who quit or retire without providing a 72–hour 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 of the notice of resignation/retiring. 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.

Check your state law for details.

What must be included

Final wages owed

The employee’s final paycheck must include the wages owed to the employee in full. If an employee is entitled to the minimum wage and overtime (non-exempt) and doesn’t work a full workweek in their last week on the job, the employer must pay the employee only for the hours worked (as defined under federal, state and local law). Keep in mind this includes not only productive time but also certain types of nonproductive time that must be counted as hours worked, such as for employer-required training and travel. If an employee isn’t entitled to the minimum wage and overtime (exempt) and doesn't work a full workweek in their last week on the job, federal law allows an employer to prorate the employee's salary for that workweek so it only covers the days worked.

Vacation

Whether the employee’s final paycheck must include pay for earned but unused vacation depends on the state and company policy. States generally handle unused vacation and paid time off in one of three ways:

• 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. 

Check your state law to determine which one applies to you.

Sick leave

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.

Other issues

Unreturned company equipment

Employers often have questions about their rights when an employee leaves and fails to return company equipment. As a general rule, employers are prohibited from withholding an employee’s final paycheck until an employee returns company equipment. The applicable final pay deadline must be met even if the employee hasn't returned company property.

For non-exempt employees (those entitled to the minimum wage and overtime), federal law permits employers to make deductions from employees' pay for lost/stolen/unreturned equipment provided it doesn’t reduce the employee's pay below the minimum wage and doesn’t cut into any overtime pay. Some states prohibit this practice or have additional requirements, so check your state law before making a deduction. Federal law doesn't permit this type of deduction from exempt employees' pay.

Note: Under the FLSA, employers are generally required to obtain an employee's consent before making a permissible deduction. The agreement must specify the particular items for which deductions will be made (e.g., company uniforms, equipment, or employee theft) and how the amount of the deduction will be determined. It is a best practice to obtain the employee's authorization in writing and consult legal counsel before making a deduction.

Deceased employee

Many states have rules governing the payment of wages after an employee has died. Some states require the final wages to be paid through the will or probate process whereas others allow employers to pay at least some of the employee’s wages directly to a surviving spouse or dependent children. For example:

	Oregon:  The state requires that all wages earned by an employee, up to $10,000, be paid to the employee’s surviving spouse, or if there is no surviving spouse, the dependent children (divided equally among the children). Any wages in excess of $10,000 would be paid to the estate.
	California: The California Probate Code sections 13600-13606 establish a process for paying out up to a certain amount of a deceased employee’s wages to a surviving spouse. The process involves an affidavit or declaration containing certain elements, verification of the surviving spouse’s identity, and payment of wages.

Check your state law for details and consult legal counsel if you are facing this difficult situation.

Conclusion

Develop policies and procedures to ensure compliance with applicable laws on final pay.