When an employee leaves your business, you must follow an employee termination checklist. One of your employer responsibilities is giving terminated employees their final pay. You must understand final paycheck laws before you attempt to distribute a parting employee’s wages.

When paychecks are due largely depends on what state your employees are in. Read on to learn about and comply with final paycheck laws.

General rules for issuing termination pay

Regardless of whether you fire an employee or they quit, you must give them their last paycheck.

The final paycheck should contain the employee’s regular wages from the most recent pay period, along with other types of compensation such as accrued vacation, bonus, and commission pay.

You can withhold money from the employee’s last paycheck if they owe your business. For example, an employee may still owe you money from a salary advance agreement. If the amount an employee owes is more than their final paycheck, you should collect the remainder from the employee.

You must provide the employee’s final paycheck. You cannot withhold unpaid wages that are due to the employee, even if you fired them. And, you cannot attach a condition of receipt to the final paycheck.

Although last paycheck laws vary by state, giving a terminated employee their final paycheck on their last day can simplify your employer responsibilities. That way, you don’t need to mail the paycheck or have the employee pick it up from your business at a later date.

Keep in mind that the employee’s final paycheck isn’t the same thing as severance pay. Severance pay is money you give to an employee for a certain length of time after they lose their job. Unlike a final paycheck, severance pay is negotiable. And, you may require employees to sign something saying they won’t sue your business if they accept severance pay.

Final paycheck laws by state

Some states require the employer to provide a terminated employee’s final paycheck immediately or within a certain time frame, such as the following payday. And in some states, the final paycheck laws depend on whether the employee was fired or quit.

As an employer, you must follow your state’s final paycheck laws. Failing to do so can result in penalties or even a lawsuit. Beyond when the last paycheck is due, your state might set further regulations on things like paying out unused vacation pay.

Take a look at the following chart for last paycheck laws, for both employees who quit and employees you fire.

Your state might have more restrictive final paycheck laws for some circumstances. And in some states, employees can request earlier payment. Make sure to consult your state government for more information.

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This is not intended as legal advice; for more information, please click here.