It Pays to Be Penny-Wise When Paying Final Paychecks
A Georgia man made national news recently when his former employer paid his final paycheck with a wheelbarrow full of oil-soaked pennies. While most employers stick to more conventional methods of payment, such as checks or direct deposit, even the most careful employer can get tripped up when an employment relationship ends.
The federal Fair Labor Standards Act does not require employers to pay final paychecks immediately. It is instead left to states to set final paycheck requirements. Final paycheck laws, therefore, vary considerably across the country.
While there is wide variability of paycheck laws depending on the state in which the employee works, there are a few standard legal issues that every employer should examine before issuing final paychecks to avoid potentially costly wage penalties.
1. What are your state’s time requirements for final paychecks?
Exactly when a final paycheck is due varies widely across the country. Some states do not strictly regulate the timing of final checks and allow employers to simply pay on the next regularly scheduled payday. Other states, especially in the western U.S., require the final payment to be made immediately or within days of termination.
In Oregon, for example, when an employee quits with at least 48 hours’ notice, the final paycheck is due on the employee’s last day worked. If an employee quits with less than 48 hours’ notice, it is due within five business days, or on the next regular pay day, whichever comes first. If the employee is instead fired, the final paycheck is due before the end of the next business day.
It is critical to know the rules in every state where your company has employees, as a one-size-fits-all approach can lead to easily-avoided liability.
2. Does my state limit how a final paycheck may be delivered?
While sometimes tempting, delivering a barrel full of pennies is not the generally accepted delivery method for final wages. More often, employers wonder whether to give the final check in person, via direct deposit, or via mail. Again, different states have different rules. In Oregon, for example, employers are prohibited from mailing a final paycheck unless the employee specifically requests for it to be mailed.
3. Are all wages included?
Employers should be penny-wise and not a penny short when issuing final paychecks. Taking the time to ensure that all wages are included in the final paycheck could potentially save you from costly wage penalties. If your business operates in states like California or Oregon with strict final paycheck laws, one penny short on a final paycheck (or in a wheelbarrow) could result in statutory penalties of up to 30 days’ wages, plus attorneys’ fees.
To avoid these potentially costly penalties, employers should confirm whether state law or their own policies or practices require the paying out of unused vacation or other paid time off upon termination. Employers should also ensure there are no outstanding reimbursements, overtime, or other wages owed. Similarly, employers must understand whether unpaid commissions are owed upon termination under their state law or pursuant to any contract with an employee.
Answering these simple questions correctly before issuing a final paycheck will help employers avoid liability and allow both employer and employee to quickly put their relationship in the past.
For more information on this topic, contact the author of this post or visit our Labor & Employment Practice page to find an attorney in your area. You can also subscribe to this blog to receive email alerts when new posts go up.