Figuring Out the Final Paycheck

When a worker’s employment ends, what should be included in a final paycheck is determined by California’s laws, the employer’s specific policies in place during the employment period, and the circumstances of the employment ending.

When an employer terminates a worker without advance notice, all wages and earned but unused paid vacation are due and payable immediately. However, if an employee gives less than 72-hours’ notice, the employer has 72 hours to provide the final paycheck. If the notice given exceeds 72 hours, all wages must be paid on the last day of work, although if the notice was for a more extensive time period, you would also make all regular payday wage payments prior to the final one.

Here are some basic rules about what is and is not included in a final pay check:

Earned Vacation Pay Must be Included in Final Check: California does not require an employer to provide paid vacation to any of its workers. However, when a business does offer this benefit, an important rule applies. Under California law, whenever the employment relationship ends, for any reason whatsoever, and the employee has not used all of the employee’s earned and accrued vacation hours, the employer must pay the employee these hours.

Vacation pay is paid out at the rate the employee was earning at the time of separation from the employer.

Sick Pay Does Not Have to be Included: Under California law and the law of all California municipalities that have adopted their own paid sick leave laws, unused sick pay does not need to paid out at the end of a worker’s employment. However, if the business has a paid sick leave policy that says it will pay out unused sick leave upon termination or at the end of the year, then it must also pay any unused sick leave amounts in the final pay.

The situation may not be so clean-cut. Some workplace policies combine paid vacation days, personal days and sick days into a single “paid time off” policy. In this instance, all such days are an accruing benefit and the employer must pay the amount equal to the earned but unused days at termination. It requires full review of an employer’s exact policies to know whether this applies in specific circumstances.

Some Commissions May Be Excluded from Final Pay. Whether an employer must pay all commissions according to these final pay laws depends on what the employer’s commission policies are, when commissions are considered earned, and when clients or customers pay the fees on which the commissions are based. For example, if the policy states that a commission is only earned when the customer pays, and customer hasn’t paid on the employee’s final date, the employer can pay the commission later at the time the customer pays the fees.

See also:

• Prepare for Summer (May, 2018)
• Payroll Record-Keeping 101 (May, 2016)
• Correct Pay Stubs Save Bucks (May, 2018)
• Employee Terminations (April, 2018)

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin

May 25, 2018