Employers often are confused about the procedures for paying final wages to an employee on termination of employment. California has explicit requirements, and the failure to comply can be costly. Here is the lowdown:

When to Pay

Some employers mistakenly believe they may wait until the next regular pay date to pay final wages. In fact, the wages normally must be paid sooner than that. Specifically:

• If the employer terminates the employment, final wages must be paid on the last day of employment.
  
• If the employee gives at least 72 hours advance notice of his or her intention to quit, final wages must be paid on the last day of employment.
  
• If the employee quits without giving at least 72 hours prior notice, final wages must be paid within 72 hours of the last day of employment.

An employee's retirement is treated the same as a resignation under the above rules.

What to Pay

In calculating final wages, employers sometimes focus only on the normal wages earned by the employee. But under California law, an employer also must pay accrued vacation time and paid time off (PTO) as part of the final wages. An employer may not provide for the forfeiture of vested vacation time or PTO on termination of employment. However, an employer does not have to pay for unused sick time unless the employer has a policy requiring such payment.

Because of the tight payment deadlines, an employer should have procedures in place to enable quick computation of accrued vacation and PTO.

Withholding or Offsetting Paychecks

Employers may want to withhold the final paycheck until an employee returns keys, computers, phones, or other property of the company. Employers also may try to deduct amounts owed to them by an employee from the final paycheck.

Although it is tempting for an employer to use these kinds of leverage over an employee, it is illegal to do so. An employer may not withhold the final paycheck until the employee returns company property. An employer may not deduct employee loan balances from the paycheck. An employer also may not deduct negative vacation time, PTO, or sick leave balances from the final paycheck.

An employer may have claims against an employer for unreturned property or unpaid loans. But the employer must pursue those claims separate from the final paycheck.

Penalties

An employer who fails to timely pay all final wages owing (along with accrued vacation and PTO) will be assessed a waiting time penalty equal to the employee's daily pay rate for each day the wages remain unpaid, up to a maximum of 30 calendar days. The employer also may be liable for the employee's attorneys' fees. The waiting time penalty and attorneys' fees could be far greater than the amount of the unpaid wages. Thus, an employer should make every effort to abide by the law.

Another reason to pay final wages promptly is to breed goodwill and reduce the chances the employee will sue the employer on other grounds, such as wrongful termination.

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The Business Law Group provides legal services in a variety of business-related areas, including but not limited to corporations, partnerships, and LLCs; buying and selling of businesses; business exit planning; real estate; contracts; employment law; stock options; estate planning; taxation; nonprofits; and civil litigation.

For further information or for assistance with any of your business law needs, please contact:

Dixon R. Howell, Esq.

[email protected]

David C. Burgess, Esq.

[email protected]

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