COMPLIANCE
Final pay – what must be included?
Andy Garboden CPP, director of payroll training for the American Payroll Association , provides details
A lthough US state laws differ on when and what must be paid to an employee whose employment is terminated, some specifics are required regardless of the state laws and are governed by the Fair Labor Standards Act (FLSA). According to the FLSA, final pay is generally due by the next regular payday. An employee must be paid for all earned and unpaid wages from the end of the previous pay period until the last day worked. For a nonexempt employee, the final pay consists of the hours worked, multiplied by the rate of pay, plus any additional pay such as nondiscretionary bonuses and differentials. For an exempt employee, the final pay can be prorated based on the days or hours actually worked since the last pay period. Although there is no requirement under the FLSA to pay unused vacation, this is generally a state-specific area. Any promise for severance pay must also be honoured. Final pay is subject to mandatory withholding, such as federal income tax, social security, Medicare tax, state- or local- mandated taxes, and any applicable wage garnishments such as child support, tax levies, and creditor garnishments. Voluntary deductions, such as medical and dental benefits, may be withheld, depending on company policy.
Generally, you must meet the applicable final pay deadline even if the employee has not returned company property. Under the FLSA, employers are generally required to obtain an employee’s consent before
off, suspended, or striking employees. The rules governing whether employers must pay separating employees for unused accrued vacation time are also provided. While some states have specific vacation pay rules, many leave the determination up to employment contract or employer policy; others include vacation pay in the general definition of wages. This table also shows which employers are subject to or excluded from the state’s law (e.g. all employers, private employers, and farming or manufacturing employers), and it includes provisions applicable to specific industries or groups. In addition, civil and criminal penalties are provided as well as the source of the information. Involuntary v voluntary terminations Four states (Alabama, Florida, Georgia, and Mississippi) do not have a provision for involuntary terminations. Six states (Alabama, Arkansas, Florida, Georgia, Mississippi, and Missouri) and Puerto Rico do not have a provision for voluntary terminations. For these states, follow either the FLSA (the next regular payday) or company policy. The remaining states vary from immediately to the next regular payday. They also vary depending on whether the termination was voluntary (some with notice requirements) or involuntary. Employers in Alaska, California, Hawaii, Idaho, Minnesota, New Hampshire, Oregon, and West Virginia should be careful. If an employee provides written notice of a voluntary termination, the
making a permissible deduction. The agreement must specify the
particular items for which deductions will be made (e.g., uniforms, equipment, or retribution for employee theft) and how the deduction amount will be determined. Final pay cannot be held because an employee fails to sign a timesheet or does not attend an exit interview. Typically, the final wages can be paid by any method used on other paydays. However, you may consider creating a company policy for consistency. What does state law dictate? The APA’s Guide to State Payroll Laws (https://bit.ly/2VxUgBd), which is available as a standalone publication and as part of Payroll Source Plus (https:// bit.ly/3i9mQCy) has a great table (2.5) titled ‘Paying terminated employees’ that shows the state requirements regarding payment of wages upon termination of employment. State rules govern how soon employees must be paid when they separate from employment, either through discharge, layoff, or resignation, including various requirements for temporarily laid-
...pay cannot be held because an employee fails to sign a timesheet or does not attend an exit interview...
| Professional in Payroll, Pensions and Reward | July/August 2020 | Issue 62 36
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