Case study: final pay

March 1, 2004
An employee quit without giving notice. She told the doctor she wanted her final pay the next day. The doctor said her final pay would be mailed to her on the next regularly scheduled payday.

Bent Ericksen and Tim Twigg

An employee quit without giving notice. She told the doctor she wanted her final pay the next day. The doctor said her final pay would be mailed to her on the next regularly scheduled payday. Although the check was mailed as promised, she complained to the Labor Commissioner that she had not been paid within the state- required time frame and that she was not paid for her earned vacation time. The commissioner ruled in favor of the employee and also ruled that the employee was entitled to be paid earned and unused vacation time. In addition, costly penalties were imposed.

Considerations

State regulations vary significantly regarding the time frame in which employers are required to give employees their final check(s). The time frame can vary from immediately to up to 15 days, depending upon the amount of notice given and whether the ending of employment is "voluntary" (employee is quitting or resigning) or "involuntary" (employee is discharged or laid off).

In addition to outstanding wages, final check(s) also should include any overtime, unused vacation, well pay, holiday pay, bonus compensation, commission, and/or incentive pay owed the employee. There may be times when amounts such as bonuses, commissions, or incentive pay cannot be calculated at the time of discharge or resignation. However, all compensation that can reasonably be calculated must be paid at the time of separation.

Although paid vacations are not required by state or federal law, employers who have an established vacation policy must abide by that policy. Many states require that employees who leave prior to having been credited with vacation time for a full year of employment must be paid for "earned" vacation time on a pro-rated basis, regardless of the stated policy for taking or using vacation.

As unfair as it may seem, state regulations usually don't allow you to hold the final paycheck pending a return of uniforms, manuals, office keys, computers, credit cards, etc. Nor can deductions be made for such items as a cash shortage attributable to the departing employee, dental treatment provided, or paid vacation time that was taken prior to having been earned. A deduction usually can made when the willful or dishonest act or gross negligence of an employee causes a shortage or loss. However, deductions may not be imposed that would cause the employee to be paid less than minimum wage.

If an employer is considered to have willfully failed to pay wages due when employment ends, then the employer may be assessed waiting-time penalties, which can be equal to the employee's daily wages for each day the wages remain unpaid. Violations are considered willful if an employer intentionally fails to pay wages according to regulations.

Solutions

Be knowledgeable about your state regulations regarding the time requirements for paying departing employees. Contact your Labor Department or call our office about obtaining our "Salary Administration Manual."

Insist that resigning employees provide written notice of their voluntary resignation, including the effective date. To support adequate recordkeeping and proper documentation, always have employees record hours worked. To keep track of either paid or unpaid absences (such as vacation time or sick leave), you may want to use a form such as our "Employee Attendance Record."

Provide a summary of relevant issues in letter format to the exiting employee on the last day worked. Additionally, use a summary sheet such as our "Check-Out Record" (Form No. 301) to ensure essential documentation is available if your final check amount is challenged. Since you cannot generally deduct from or hold checks as a means of collecting monies owed to you, avoid allowing vacation time to be taken before it is earned or otherwise providing services for which you plan on being paid in the future.

Pay any and all outstanding amounts immediately upon ending employment. To be fair to the employee, pay all departing employees their earned and unused vacation time. Lastly, if for some reason you are unable to provide payment in person, by all means make sure that you send the check(s) with delivery-receipt confirmation, such as certified mail, within the specified time frame.

Bent Ericksen is the founder and Tim Twigg is the president of Bent Ericksen and Associates. For over 25 years, the company has been a leading authority in human resources and personnel issues, helping dentists successfully deal with the ever-changing and complex labor laws. Both authors are members of the Academy of Dental Management Consultants. To receive a complimentary copy of the company's quarterly newsletter or to learn more, contact them at (800) 679-2760 or at www.bentericksen.com.

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