Immediately upon termination of an employee, employers in California must hand over the last paycheck, paying all wages earned and unpaid at the time of discharge. Since the employer is the one initiating the termination, it is their responsibility to ensure this happens immediately. Otherwise, there will be consequences under final pay laws.
Even when an employee resigns, the last paycheck must be submitted to the employee within 72 hours if the notice period is that length or shorter. If the notice period exceeds 72 hours, then the employer still must produce the last paycheck on the last day of employment.
In a webinar presented by the Employer Research Institute (ERI) titled “Final Pay in California: The Rules You Need to Know for Both Resignations and Terminations,” Michelle Lee Flores, Esq., outlined some guidance for employers in this situation, noting the do’s and don’ts for that last paycheck.
So, what happens if an employer does not pay either immediately upon termination or within that 72-hour period when applicable? Under California’s final pay laws, in this case the employer would be subject to “waiting time” penalties. The law is serious about payment of wages to employees; for each day that an employee must wait for an employer to pay wages due, the employer will owe the employee his or her daily rate of pay as a penalty for the delay. This will continue for up to a maximum of 30 days, and it includes Saturdays and Sundays as days in wait.
Knowing this, it’s obviously of paramount importance to get that last paycheck right. Beyond paying promptly, that also means including everything you’re required, and not making any deductions that could be disputed. Here are three important tips:
- Include all elements of pay owed, including accrued and vested vacation pay, sick leave pay in some circumstances, and commissions owed.
- Do not use the last paycheck as a place to deduct for monies owed from the employee, not even for loans payable on demand or unreturned company property. You have rights, but the last paycheck is not the best place to settle these issues.
- If there are errors to correct, such as an accidental overpayment, duplicate checks, or outstanding employee claims, be careful to ensure these are resolved promptly and without withholding pay while the resolution occurs.
Here is a closer look at the first tip: Include all elements of pay owed:
In this regard, most California employers specifically provide that an employee will earn his or her vacation at a rate equivalent to x number of hours per month or per pay period. Sick leave is only considered to be due as wages if the employer policy provides that the leave can be taken for things other than sick time. As such, generally all accrued and vested PTO time must be paid as vacation time.
Commissions are also wages to be paid in the last paycheck. This is a concern for some employers, as it is common to pay commissions at a later date, after the reconciliation of the figures. Nonetheless, final pay law requires the payments of commissions at the earliest possible time. Regardless of when they are typically calculated, if it is in any way possible for an employer to pull the numbers and figure out the commission that is due on that date of termination (or the date of resignation, or within a few days of one’s last day of employment), then it is strongly suggested that an employer do so and pay it – otherwise the employer risks waiting time penalties.
For a more detailed explanation of the other two tips, see part 2 of this article.
The above information is excerpted in part from an ERI webinar titled “Final Pay in California: The Rules You Need to Know for Both Resignations and Terminations.” View a complete listing of upcoming ERI webinars.
Michelle Lee Flores is a partner in the Los Angeles office of Fisher & Phillips LLP. (www.laborlawyers.com) She focuses her practice employment litigation, including cases involving harassment and discrimination, wage and hour violations, and wrongful termination.