How to Issue a Final Paycheck
As a small business owner, it’s critical to understand the finer details of when to issue an employee a final paycheck. Whether an employee takes another job, or you terminate their employment, there will likely come a time in your small business journey that you have to deliver a final paycheck.
According to the U.S. Department of Labor, employers are not required under federal law to immediately issue separating employees their final paycheck. However, states may have a law which will dictate when and how an employer must issue a final paycheck. Below, you’ll learn what goes into a final paycheck, state requirements, and the appropriate steps to follow when delivering a final paycheck.
What Goes In a Final Paycheck
When issuing a final paycheck to your employee, you must include the employee’s regular wages from the most recent pay period along with any other type of compensation such as accrued vacation days, a bonus, or commission pay. An exception to these funds is made if an employee owes you money. If there was a previous agreement in place and they haven’t finished paying, their final paycheck will have to cover that outstanding balance first.
From payroll frequencies, to payroll taxes, each state may have different laws regarding payroll and taxes. Final paychecks are no different. For example, in the state of Illinois, the final paycheck deadline for both terminated employees and an employee who resigns or quit is the next regular payday.
Conversely, Arkansas has different final pay requirements:
- Terminated employees must receive their final paycheck within seven days of termination
- Employees who resign or quit should receive their final paycheck on the next regular payday
There are even states, including California and Colorado, that require an employer to immediately issue a final paycheck if they terminate the employee.
Note: State Department of Labor websites, which contain final paycheck laws, can be found here.
Is Missing the Deadline a Big Deal?
If you don’t adhere to your state’s laws regarding when to issue a final paycheck, it can result in various types of trouble.
For example, the employee may file a claim with their State Department of Labor or contact an attorney department and/or U.S. Department of Labor’s Wage and Hour Division. Depending on the circumstances, fines or penalties may apply.
While you don’t have to worry about federal laws governing when to issue an employee a final paycheck, you do need to pay attention to your state’s laws and regulations.
Putting information around a final paycheck in an easy to find place, like an employee handbook, can set the expectations early and prevent stress and misunderstandings in the future with you and your employees.