By Tim Twigg and Rebecca Crane
An employee quits without giving notice. She tells the doctor that she wants her final pay the next day. The doctor says that her final pay will be mailed to her on the next, regularly scheduled payday. Although the check was mailed as promised, the employee complains to the Department of Labor that she had not been given her final paycheck when required and had not been paid for earned/unused vacation.
Guess what? The doctor loses and the employee wins. Why? Because this dentist, like so many dentists, did not understand the requirements for issuing final paychecks. Final paycheck rules are established by each individual state, and those regulations can vary significantly from state to state.
These requirements also vary according to the type of termination; i.e., voluntary (on the part of the employee) or involuntary. Thus, the time frame for providing someone with his or her final check who is discharged may be different than if that same person had quit voluntarily.
To complicate matters further, states often distinguish between quitting with notice vs. quitting without notice. The time frame given can range from immediately to the next available payday to no regulations at all depending on the state you're in. As a result, most employers cannot have one policy on final pay and have it be applicable to everyone (call us for our final paycheck chart to know your state regulations).
As unfair as it may seem, state regulations don't allow you to hold the final paycheck pending a return of uniforms, manuals, office keys, computers, credit cards, etc. In addition, strict rules severely limit when an employer can make deductions from the employee's final paycheck; thus, it is advisable to refrain from doing so.
Final pay compensation should include all outstanding wages through the last hours of work, plus any overtime, as well as any other compensation required by employer policy or state law. This may include payout of unused vacation or paid time off benefits, if applicable.
In general, benefits such as vacation, paid time off, holiday pay, and severance are paid according to the employer's policy. Most states take the position that since none of these benefits are required by law (in the private sector), then employers can develop their own policies on how these benefits get handled upon termination of employment. Therefore, whether or not payment of such benefits is required depends on the policy the employer has written. That means employers can create policies that forfeit payment for any of these benefits upon termination.
Some states, however, make an exception for vacation/paid time off. In those states, the employer cannot have a use-it-or-lose-it policy for vacation/paid time off, because it is considered part of the employee's wages. As a result, no matter how the employer's policy is written, those benefits must be paid out. Currently, the states with those laws are: California, Colorado, Illinois, Indiana, Massachusetts, Maryland, and Nebraska.
Other items such as bonuses, commissions, or incentive pay must also be included, but, in some cases, they cannot be calculated at the time of discharge or resignation. When this is so, the employer should include all wages, overtime, and/or other unused benefits on the final check to meet the required time frame and inform the employee that once the other calculations are able to be completed, the remaining amount will be provided immediately.
Finally, while it may seem natural to mail the employee his or her final check, it is not recommended. Employers have an obligation to make the check available within the regulation time frames, not deliver it. Employers have experienced problems when an ex-employee comes to the practice to get his or her check and the employer has mailed it instead. Wait until the ex-employee requests the check to be mailed, document the request, confirm the mailing address, and always send it certified mail with a return receipt.
The penalties and fines associated with mishandling an employee's final paycheck can be costly. Oftentimes the fine is an assessed amount multiplied by the number of days that the final compensation was not provided. Be sure you're not one of the unlucky ones. Learn more about your state's final pay regulations to ensure you're in compliance.
Tim Twigg is the president of Bent Ericksen & Associates, and Rebecca Crane is a human resource compliance consultant with Bent Ericksen & Associates. For 30 years, the company has been a leading authority in human resource and personnel issues, helping dentists successfully deal with the ever-changing and complex labor laws. To receive a complimentary copy of the company's quarterly newsletter or to learn more about its services, call (800) 679-2760 or visit the website at www.bentericksen.com.
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