You’re Fired: How to Pay Final Wages to Terminated Employees

Employers must have established payroll processes in place to ensure compliance with state laws regulating payment upon termination of employment, two industry experts said May 9.

Most states have laws requiring employers to pay employees within a certain time frame after their employment is terminated, said Kevin Valuet, Director of Payroll Training for PayrollOrg. However, most states make a distinction between voluntary and involuntary termination of employment, and different requirements apply for each.

A few states determine the deadline for final wage payments based on whether employees provide notification of their employment termination in advance to employers, he added. Other states restrict the ways in which employers can make final wage payments.

Alabama, Florida, Georgia, and Mississippi have no provisions concerning payment upon termination of employment, but employers still have federal obligations to pay employees on time, he added.

“We know that the [Fair Labor Standards Act] does not govern the frequency or how often we need to pay individuals,” he said at PayrollOrg’s 42nd Payroll Congress in Nashville. “That is going to be governed by the state. However, the FLSA does state that you must pay an employee at the regular payroll date for that payroll period.”

To ensure compliance with various state laws, payroll professionals should determine the steps in their existing payment process for termination of employment, how long the process takes, and where employees are working, said Karen Ward, Payroll Compliance and Education Consultant for Spanish Oak Solutions, LLC. They should only ask these questions about their regular payroll process, not any special process for expedited payments, she added.

Payroll professionals should then prepare a timeline of all the steps in the payment process, which should include the amount of time needed by payroll and any third-party vendors, she said.

Payroll professionals should also create processing calendars for company managers and human resources, she said. The processing calendar is intended to inform others in the organization of the time periods during which it might be difficult to make timely final wage payments to employees.

“Put in banking holidays,” Ward said. “If you date a check for tomorrow and it’s a holiday, the employee cannot go to the bank tomorrow.”

Establishing these procedures requires the support of company executives, added Valuet. Payroll professionals should explain to them how these procedures will ensure compliance with the law and prevent penalties and interest.

“Show them what the penalty can be,” Valuet said. "[States] will come in and check those records, especially if it’s being shown that you’re neglectful in this case. So, you get buy in from the top and prove to them that it’s in their best interest to make the changes to ensure that terminations are handled correctly.”

Employers should also train managers on how to handle employment terminations so that final wage payments can be timely, he added.

“Keep it simple,” Valuet said. “Are your employees and staff going to understand [the law]? Probably not. Direct them to where they can find the regulations, but paraphrase. You know about it, you read into it. Tell them what they need to know and keep them up to date.”