When a worker’s employment ends, the items required in the final paycheck are determined by California’s laws, the employer’s specific policies at the time of termination, and the circumstances of that particular company-employee relationship.

When a business terminates a worker, all wages and all earned but unused paid vacation are due and payable on the last day of work. However, if an employee gives resignation notice less than 72-hours from his departure, the employer has 72 hours from that notice date to provide the final paycheck. If the notice given by either party exceeds 72 hours, all wages must be paid on the last day of work as well as on any paydays that may fall in the interim.

Here are some basics on what employers must include in a final pay check:

Earned Hourly Wages or Salary Must be Included: California requires an employer to fully pay all earned hourly wages, overtime and/or salary compensation through the worker’s final day of labor. A company need only pay the pro-rated portion earned to that final day on a weekly or other pay-period salary for an exempt-from-overtime executive, administrator, etc.

Earned Vacation Pay Must be Included: 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: 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 is Not Included unless Company Policy States Otherwise: Under California law and the ordinances of those municipalities providing their own paid sick leave standards, unused sick pay does not need to be paid out at the end of a worker’s employment. However, if the business has a paid sick leave policy specifying it will pay out unused sick leave upon termination or at the end of the year, then that employer 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 requirement 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 that employer’s policies and practices. Considerations include when commissions are deemed to be earned. Some businesses specify a commission earned upon an agreement to purchase. Others set a customer’s payment for the goods or services as the “earning event.” If the event has yet to occur on a commissioned employee’s final day, payment of such commission is owing upon the subsequent occurrence of that event. Best practice is for a company to clearly set out the applicable earning event in its written commission rules.

Consequences in the Event of Underpayment: Whether or not intentional, California imposes a daily “penalty wage” to a maximum 30 days on an employer who miscalculates and thus underpays a departing employee all remaining compensation owing on the latter’s final day of work. This rule does not just cover miscalculation of wages, etc. that might be owing the worker from his or her final pay period. It covers math errors and underpayments committed for any work performed up to three years prior to that final work day. While such mistakes on a single worker are relatively survivable for a company, a legitimate claim brought on behalf of a large class of former employees for an across-the boards error of this kind can be a life-threatening challenge to that business.

See also:

• Prepare for Summer (May, 2018)
• Payroll Record-Keeping 101 (May, 2018)
• 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