When you terminate an employee, you might need to process the employee’s final paycheck before your next regularly scheduled pay cycle. Though there are no federal laws requiring immediate payment, state laws covering the final paycheck vary considerably from state to state and may even require you to issue payment right away.
Federal law does not require any off-cycle payments for departing employees, according to the U.S. Department of Labor. Though there are no federal regulations on how quickly you must pay a terminated employee, the Department of Labor does regulate other aspects of the last paycheck. For example, you must issue payment for all hours worked. You can prorate the final paycheck to only include days actually worked, but the Fair Labor Standards Act prohibits you from making additional deductions you would not normally include on a regular paycheck.
The Department of Labor encourages former employees to file a complaint if they do not receive their final paycheck on the next regular payday after their termination.
State laws regarding when you must issue a final paycheck vary significantly. In some states, like California, you must immediately provide payment for all time worked as soon as the employee is terminated. Other states, like Colorado, require immediate payment but allow a short grace period if your payroll processor is off site or if it is closed when the employee is terminated. Other states are somewhat more lenient, with payment periods ranging from the next business day in Oregon to 72 hours in West Virginia and even five business days in Wyoming. Some states have no law regarding terminated employee pay, either requiring payment on the next scheduled payday or deferring to federal regulations.
Of the states that regulate the final paycheck, many allow different payment periods based on the reason the employee left. As a general rule, these states require you to issue the final paycheck more quickly if the employee was involuntarily terminated. You are given a little more time if the employee resigned.
Check with your state’s Department of Labor for the most current laws regarding when you must issue the final paycheck. If you are unsure of your state’s requirements, issuing the final paycheck immediately will help ensure you meet even the strictest requirements.
The Fair Labor Standards Act does not dictate that you include benefits like paid time off and sick days on the final paycheck, but your state may require these payments. The Society for Human Resource Management reports that if you live in a state that does not mandate these payments, then your company’s employee handbook should explain what benefits and severance payments will be included on final paychecks.