FAQS: WAGE AND HOUR - CALIFORNIA FINAL PAYCHECKS
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- Can you review the California rules regarding the timing of final paychecks?
- Can an employer mail a final paycheck when terminating an employee, including a telecommuter, by phone?
- Do the final paycheck timing rules still apply even if an employee requests to receive the final paycheck on the next regular payroll date?
- Can we honor an employee's written request to have her final paycheck direct deposited?
- If we terminate a commissioned salesperson, when must we pay out the final commission?
- In California, can an employer make a deduction from an employee's final paycheck to recover advanced vacation time?
- Do we need to pay out an unused "personal day" or "birthday" holiday upon an employee's separation, even if we have a separate vacation policy?
- Can the cost of an unreturned uniform be deducted from an employee's final paycheck?
- Should we include severance pay in the final paycheck?
- Can you review the California rules regarding the timing of final paychecks? California Labor Code sections 203 et seq., set out strict rules for the timing of final paychecks when an employee is discharged (for any reason) or quits. Here is a summary of the rules and some guidelines for following those rules.
- Can an employer mail a final paycheck when terminating an employee, including a telecommuter, by phone? California law requires that the final paycheck be made available at the time and place of discharge. Thus, the employer must cut the check and have it ready for the employee to pick up. Mailing the check to the employee, if the employee requests it, is permissible. However, the employer should document that the paycheck was made available to the employee at the time of discharge. What about an employee who works in California for an out-of-area employer, such that it is impossible for the employee to pick up the paycheck? Unfortunately, this situation is not specifically addressed in the law. The safest practice is to obtain the employee's written authorization to deliver the final paycheck overnight, such as by FedEx, and pay the employee through the date that he or she will receive the final paycheck. Alternatively, the employer could FedEx the final paycheck the night before the termination so that it is received on the date of termination.
- Do the final paycheck timing rules still apply even if an employee requests to receive the final paycheck on the next regular payroll date? Yes. An employer is not relieved of the deadline for providing final wages even if an employee requests, in writing or orally, to have the final paycheck issued on the next regular payroll date or at another time.
- Can we honor an employee's written request to have her final paycheck direct deposited? It depends. While direct deposits of wages to an employee's bank, saving and loan, or credit union account are permissible with the employee's written authorization, any such authorization is immediately terminated when an employee quits or is discharged. In any case, direct deposit of a final paycheck is permissible, pursuant to Labor Code section 213(d), if the employee has voluntarily provided written authorization for that specific deposit. It is important to keep in mind, however, that the rules regarding timing of final paycheck rules still apply in this situation, and employers are not relieved of compliance because they are directly depositing the final wages.
- If we terminate a commissioned salesperson, when must we pay out the final commission? If the commissions have been "earned" and are calculable on or before the date of termination, the employer must complete the necessary calculations and pay the commissions in the final paycheck -- and in compliance with the final paycheck timing rules. It is not permissible for the employer to wait until the customary time for calculating the commissions of current employees, nor is it permissible to delay payment of earned commissions until the next regularly scheduled payday. On the other hand, if the commission has not yet been earned or is not calculable at the time of termination (such as when the employer is awaiting the completion of some legal condition precedent like receipt of the customer's payment), the commission must be paid immediately after the condition occurs and the commission becomes ascertainable. It is advisable to review commission plans to ensure that they clearly define when a commission is "earned" to lessen the risk of claims for failing to properly pay out commissions on termination.
- In California, can an employer make a deduction from an employee's final paycheck to recover advanced vacation time? The practice of advancing vacation is risky because if an employee quits or is discharged before the advanced vacation is earned back, the DLSE takes the position that the advanced amount is like any other debt and the employer cannot use self help to recoup it by simply deducting the amount from the employee's final paycheck. In this situation, the employer could ask the employee to repay the amount, or the employer might have to use other legal channels to recover the debt.
- Do we need to pay out an unused "personal day" or "birthday" holiday upon an employee's separation, even if we have a separate vacation policy? Generally, yes. In California, a "personal holiday" or "floating holiday" policy that allows employees to take paid days off for whatever purpose they wish must be treated the same as vacation, and accrued unused days must be paid out upon termination. Employers can also impose a cap on the number of personal or floating holidays that can accrue, in the same manner as it can establish such a cap on vacation accruals. Similarly, if the "birthday" holiday allows employees to take any day off (like vacation), then it too will be treated like a vacation day. Conversely, if, a "birthday" holiday policy requires employees to use the birthday holiday on the employee's birthday (or by the following pay period), the DLSE does not consider it the same as vacation, and it need not be paid out at separation.
- Can the cost of an unreturned uniform be deducted from an employee's final paycheck? The California Industrial Welfare Commission (IWC) Wage Orders permit an employer to deduct from an employee's final paycheck the cost of unreturned tools, equipment and uniforms, provided the employee has given prior written authorization for the deduction. No deduction is permitted for normal wear and tear.
- Should we include severance pay in the final paycheck? No, severance pay should be provided separate from final wages. This helps to distinguish between the amount that is being paid as final wages for work performed through the date of termination and the severance amount, thus making it easier for the employer to demonstrate that the final paycheck was timely provided.
An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination and at the place of discharge. Most discharge decisions are made in advance, so employers should have the final paycheck in hand when giving the employee notice of his or her termination. In the event of an unforeseen or immediate discharge where a final paycheck is not prepared in advance, the employer should consider paying an additional number of days of wages representing the date the paycheck will be ready for the employee.
If an employee quits without giving prior notice, the employer has 72 hours to provide the employee's final paycheck. Alternatively, at the employee's request (and provided the employee designates a mailing address), the employer may mail/overnight the final paycheck to the employee as long as the date of mailing is within 72 hours of the notice of quitting. The 72-hour period is calculated as one contiguous 72-hour period that includes weekends and holidays. If the final pay is delivered by mail, it is advisable to use a means of delivery that provides tracking and confirmation of receipt.
If an employee gives at least 72 hours prior notice of his or her intent to quit and quits on the day given in the notice, the employee must be paid all of his or her wages, including accrued vacation, at the time of quitting. Thus, if on Thursday an employee gives notice that his last day of work will be the following Monday, he is entitled to receive his final wages by the end of his work shift on Monday.
An employer who fails to pay any wages due a terminated employee (discharge or quit) in the prescribed time frame may be assessed a "waiting time penalty." The waiting time penalty is an amount equal to the employee's daily rate of pay for each day the wages remain unpaid, up to a maximum of thirty (30) calendar days. An employee will not be awarded waiting time penalties, however, if he or she avoids or refuses to receive payment of the wages due.
Keep in mind that there are special rules for final paychecks for employees in certain industries, such as motion picture production, oil well drilling, and for seasonal employees in the curing, canning or drying of various fruit, fish or vegetables.