COVID-19: Final Paycheck Rules for Terminated Employees

Things to consider as you handle an employee’s last paycheck

Paystub
If you're preparing to terminate staff, don't be caught out of compliance. Use this checklist to make sure your adhering to final paycheck rules.

If you’re in the unfortunate position of letting someone go because of COVID-19, it’s important to properly administer their final wages. Below are some factors to consider when handling employees’ last paycheck during the pandemic.

When are final wages due under the FLSA?

The Fair Labor Standards Act does not require you to give terminated employees their final paycheck right away. Generally, though, the FLSA mandates that wages must be paid “on the regular payday for the pay period covered.” This means that, under federal law, if your employees are voluntarily or involuntarily terminated because of COVID-19, they must receive their final paycheck by their next regular payday.

Per the U.S. Department of Labor, employees who do not receive their final wages by the next regular payday should contact the agency, which has a process in place for recovering back pay.

Unlike the FLSA, most states have laws addressing final wages.

When are final wages due under state law?

It depends on the state, and often, whether the employee quit or was fired. In some states, the employee’s occupation, as well, influences when final wages are due.

5 examples of final pay deadlines, based on state law:

wdt_ID State Employee Quit Employee Fired
1 Arizona Next regular payday Within 7 working days or by next regular payday, whichever comes first
2 Arkansas Next regular payday Within 7 working days if the employee requested it. Otherwise, by next regular payday
3 California Within 72 hours, or immediately if the employee provided at least 72 hours’ notice Immediately
4 Colorado Next regular payday Immediately
5 Connecticut Next regular payday Next business day after separation

The same deadline usually applies to both firings and layoffs. However, there are exceptions. For example, in New Hampshire, final wages are due within 72 hours if the employee was fired, and by the next regular payday if laid off.

For details on when final wages are due under state law, contact your state’s labor department. If the state does not say when final wages are due, the FLSA — which requires payment of wages by the next regular payday — stands.

What does regular payday mean?

Regular payday refers to the employee’s pay frequency, such as weekly, biweekly, semi-monthly, or monthly.

Most states have payday laws, which dictate the minimum pay frequency for employees working in the state. For instance, employees in North Dakota and Oregon must be paid at least monthly. Those in California must be compensated no less than weekly, biweekly, or semi-monthly, depending on their occupation.

A few states, such as Alabama and South Carolina, have no minimum payday laws, leaving employers to designate their own pay frequency.

Are COVID-19 furloughs subject to final wage laws?

A furlough is when an employee is placed on temporary unpaid leave by their employer, usually as a cost-cutting strategy for staying afloat during harsh economic times. You might, for example, furlough employees who you don’t want to permanently lay off during the COVID-19 pandemic.

Since furloughed employees are still on their employer’s payroll, there may be some confusion as to whether they’re subject to final wage laws. Be sure to examine state law, as some states may consider furloughs as termination of employment and consequently subject to the state’s final pay regulations.

Since furloughed employees are still on their employer’s payroll, there may be some confusion as to whether they’re subject to final wage laws.

For example, in 1993 and 1996 opinion letters, the California Division of Labor Standards Enforcement collectively held that a furlough is not regarded as a termination if it has a specified return-to-work date and does not go beyond the employee’s normal payroll period or 10 days. This suggests that if a furlough does not have a specified return-to-work date or exceeds the employee’s normal payroll period or 10 days, it may be viewed as a termination, thereby triggering California’s final pay requirements.

What goes in the last paycheck?

Check with your state labor department, as some states define what constitutes final wages. Normally, though, final wages include all wages due to the employee upon termination, such as regular hourly wages or salary, overtime pay, bonuses, and commissions.

If applicable, severance pay should be disbursed according to the written agreement/contract, such as a lump sum payment or smaller amounts over a period of time.

As for paid time off, many states require that employers include employees’ unused paid vacation time in their final wages. Most states do not mandate employers to pay out unused sick time to terminated employees. Likewise, under the Families First Coronavirus Response Act, employees are not entitled to payout of unused sick leave upon termination of employment.

Do you offer a PTO bank system instead of allocating vacation and sick time separately? If so, unused PTO may be subject to the same state-mandated final pay rules as unused vacation. In this case, if the state requires payout of unused vacation upon termination, then unused PTO bank days must be paid out as well. If the state does not say what happens to unused paid time off when employees terminate, adhere to company policy.

How should final wages be delivered?

The state may have guidelines on this. For instance, the state might require you to immediately stop employees’ direct deposit when they terminate, unless the employee authorizes you to direct-deposit their final wages. The state may also explain the circumstances under which final wages can be mailed.

If state law is silent on the delivery method, you can follow company policy. But remember, during this COVID-19 era, electronic payments — such as via direct deposit or payroll card — are the safest ways to distribute final wages.

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