For any company that has one or more employees, there will inevitably come a time when a final paycheck has to be processed. Whether the separation is voluntary (the employee leaves of their own accord) or involuntary (the employee is being let go), the company is responsible for issuing a final check to the departing individual. However, processing and issuing the final payment to an employee is not always as simple as one might think. Here are some considerations to take when dealing with final paycheck processing due to separation of employment.
What is the reason for separation?
Is the individual quitting for new employment elsewhere, or for another personal reason? Are they going into retirement? Or, are they being let go due to the company downsizing, or some other business decision outside the employee’s control? Depending on the situation, company policy, and state regulation, there may be requirements for severance pay or payouts of earned and unused time off.
How much notice was given?
If the employee is quitting, how much notice have they provided? Depending on the requirements of each state, being notified in advance by the employee could mean their final payment is due immediately on their last day of employment. Note that ‘advance notice’ doesn’t have to mean two weeks – some states only require a 48 or 72-hour notice from employees to warrant the issuance of final pay on the last day of employment. Immediate payment might also be required in scenarios where the individual is being let go involuntarily. In other cases, payment can be processed along with the next regular pay cycle.
What items should be included on a final check?
In addition to the previously mentioned severance or payout of unused time off, the company may have other items to include on an employee’s final check, including bonuses, commission payments, or tip wages. If the company offers certain taxable fringe benefits, the corresponding amounts should be imputed on the final check. There may also be additional requirements if a union or collective bargaining agreement is involved.
In addition to all of the above, payroll and HR should work together (along with any other relevant departments) to make sure that:
- All applicable notices are distributed in accordance with the Worker Adjustment and Retraining Notification (WARN) Act and The Consolidated Omnibus Budget Reconciliation Act (COBRA), as applicable.
- Company property is returned. This could include keys, laptops, tools, or uniforms.
- Terminated employees’ access to the company’s physical and digital systems and tools are restricted – many companies allow limited access to an employee portal for former employees to update addresses and retrieve pay stubs or other documents electronically.
Trust a Payroll Expert
Employee turnover can also be a very stressful time for all parties involved, which makes it very easy to overlook the details that can lead to errors. Each situation may warrant different processes, and incorrect handling of employees’ final checks could lead to penalties, back pay, and potential lawsuits. Partnering with the payroll experts at Valor Payroll Solutions can help ensure that every paycheck is processed accurately and in compliance with all state and federal regulations. Contact us today!