Proper Payroll When an Employee Leaves
Q: Within what time frame is an employer required to pay an employee wages owed if the employee quits? Does the answer change if the employee is terminated?
A: Federal law does not set a deadline for the payment of accrued wages, commissions or salaries when an employee is separated from employment. However, states can--and do--adopt their own laws with respect to the timely payment of wages upon termination of employment.
For example, in Arizona, an employee that is terminated must be paid all wages due within three working days from the date of discharge, or the next regular payday, whichever comes first. When an employee resigns, he is entitled to receive his wages no later than the next regular payday, and if the employee so requests, the employer must pay the employee by mail.
By comparison, in California, in most cases, if an employer discharges an employee, any wages earned but unpaid at the date of discharge must be paid immediately. If an employee resigns, he must be paid his final wages no later than 72 hours after quitting. And in New York, the employer must pay an employee's unpaid wages on the regular payday for the pay period during which the termination or resignation occurs.
Because each state is different, employers must check their particular state's laws regarding the timely payment of wages. Employers must also check their particular state's laws with respect to what actually constitutes "wages". For instance, in some states, vacation pay is considered to be earned wages. Therefore, any earned vacation pay must be included in the final payment to the employee within the time frame provided by that state's laws. The same is true regarding severance pay. Some states consider severance pay to be part of an employee's earned wages, while others do not.
Another issue employers often have to consider when an employee is separated from employment is whether or not they're allowed to withhold money from an employee's paycheck for property belonging to the employer, such as equipment or uniforms. Again, whether or not certain deductions are allowed is governed, in part, by state law. Regardless of what a particular state law requires, employers must also be sure to comply with federal wage and hour law regarding minimum wage whenever making any deductions or withholdings.
In sum, the time frame within which an employer must pay an employee wages at separation of employment is governed by individual state laws. Employers must also consult their state laws with respect to what constitutes wages and permissible deductions.
Note: The information in this column is provided by the author, not Entrepreneur.com. All answers are general in nature, not legal advice and not warranted or guaranteed. Readers are cautioned not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.
Larry Rosenfeld is co-chair of the national labor and employment practice of the law firm Greenberg Traurig LLP. A frequent writer and lecturer on employment law topics, Rosenfeld is experienced in the areas of federal laws pertaining to employment issues, EEOC, ADA, termination matters, employment liability and the Fair Labor Standards Act.