HR Management & Compliance

Q&A on deductions from final paychecks in California

Making deductions from the final paycheck can open an employer up to legal problems—including accusations of withholding final pay if the deduction was improper. If an employer is deemed to have withheld final pay, it could be subject to waiting time penalties.

In a recent CER webinar, Joel M. Van Parys and Nicole A. Legrottaglie addressed this issue in detail. They explained the employer obligations to give the employee their final paycheck

Q. If an employee resigns and there are still outstanding expense reimbursements to process, it may be impossible to get the final pay done within the required 72-hour turnaround. What should we do?

A. If there are reimbursements that are owed to the person when the person resigns that prevent 72 hours from being enough time to get those done, I would still advise employers to find a way to get them done in that time if it is at all possible. If it is truly not possible to get them done in 72 hours, there may be some type of liability, depending on what type of payment it is.

If the employee has not yet submitted their receipts for reimbursement, be sure you request those receipts and pay them as soon as they are received. If there is a problem with the way the request has been made or if there is missing information, contact the employee about the discrepancy. Be sure to document why you’re unable to get it done within the time frame.

Q. We understand the final payment rule, but what if the employer uses an external payroll processor? The normal turnaround time is 24 to 48 hours. What should the employer do in this case to issue the final pay in time?

A. This is a challenge because many companies use third-party payroll services. Sometimes it can still be planned based on when you’re going to end the employment relationship. The employer may end up with a slight overpayment in these cases. The other way to handle this is to “pre-pay the penalty.” For example, if the employer knows the final pay will be paid late, they simply plan on it and pay the extra amount (the penalty) with the final paycheck instead of later.

Q. Is the 72-hour payment period related specifically to California law? Or is this at the federal level?

A. It is specific to California law.

Q. Can final pay be paid via direct deposit, or must it be paid as a check?

A. Final pay can be direct deposited as long as it complies with the time requirements. It can be difficult administratively to get the direct deposit to occur within the required timeframe, but it is acceptable if you can do it.

Q. If we pay a discretionary bonus for the previous calendar year after the fiscal year ends on March 31st, and an employee was terminated at the end of the calendar year, do we have to pay them their discretionary bonus?

A. Probably not, but it depends on the rules required to meet the discretionary bonus requirements.

For more information on processing the final paycheck on time, order the webinar recording of “Final Pay: Understanding Your Rights and Obligations When the Employment Relationship Ends.” To register for a future webinar, visit CER webinars.

Joel M. Van Parys is an attorney in the Sacramento office of Carothers DiSante & Freudenberger LLP. He represents management in all aspects of the employer-employee relationship, including defense of wage and hour claims, employee misclassifications, wrongful termination, discrimination and harassment, retaliation and unfair competition claims.

Nicole A. Legrottaglie is an attorney in the Sacramento office of Carothers DiSante & Freudenberger LLP. She defends her clients in a broad range of employment claims, including claims of discrimination, retaliation, harassment, wrongful termination, ADA/FMLA compliance, wage and hour, contract disputes, and unfair business practices.

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