California Termination and Payout Laws for Employers

Losing an employee—whether through layoff, firing, or voluntary resignation—can be stressful for employers. If you're a California employer thinking about laying off or firing your workers, you should make sure you follow California's strict rules about issuing final paychecks.

Final Paycheck Rules in California

California law requires final pay to include "all wages and accrued vacation earned but unpaid." For purposes of final pay, "accrued vacation" includes traditional vacation pay as well as paid time off (PTO).

What's more, you may have to issue a final paycheck very quickly. When an employee voluntarily resigns, the amount of notice the employee gives determines the due date for the final paycheck. If an employee gives less than 72 hours notice (clock hours, not business hours), you have 72 hours from the time of notice to issue the final check. If an employee gives more than 72 hours notice, the final paycheck is due on the employee's last day of work.

One exception to the "final day, final pay" rule occurs in a layoff when a firm return-to-work date exists. In this situation, the discharge is considered temporary and final wages are not immediately due. Instead, you may pay the employee's wages on the next regular payday.

Final Paychecks for Involuntary Termination

In the case of involuntary termination (including a layoff with no return-to-work date), you must issue final paychecks at the time of discharge. Obviously, this requirement can create difficulties for employers who terminate employees at remote jobsites, or late in the day after the payroll employees are gone. The legal obligation to issue an immediate final paycheck always has to be part of the analysis of when and where to terminate employment.

Final Paychecks for Seasonal and Temporary Workers

Timing requirements are difficult in some circumstances. For example, final paychecks are due within 72 hours of a seasonal layoff of employees. Even temporary layoffs may necessitate payment of a final paycheck. If you lay off an employee temporarily and set a return a return-to-work date after the regular pay period, you must pay that employee all final wages on the last day of work. If the return to work date is within the pay period, you may pay the employee on the next regular payday.

Final Paychecks for Remote Workers

Employers in California should send final paychecks to remote employees by registered mail to avoid any dispute as to when it arrived. Alternatively, employers can issue final paychecks to remote employees using direct deposit.

Can You Send the Final Paycheck via Direct Deposit in California?

You can pay final wages via direct deposit if an employee previously authorized direct deposit for wages. Keep in mind that payment of final wages by direct deposit may not be practical. For example, unless an employee quits precisely 72 hours prior to payday (and the payroll can include all unpaid vacation in the check), a direct deposit of the final paycheck will likely be late.

More often, terminations occur mid-pay-cycle, and you could incur fees to process a special direct deposit. Therefore, generally speaking, it is best to not rely on direct deposit for final checks. Instead, issue paper checks to departing employees.

Expense Reimbursement in California

Besides regular wages and vacation pay, you may owe other types of compensation to the employee when the employment relationship ends. Similarly, employees often leave work without submitting all final expense reports, making it impossible to calculate outstanding reimbursement in the final paycheck.

Ask employees to turn in expense reimbursement requests as soon as possible and process them on a customary schedule. Remember that an employee's failure to promptly turn in expense reimbursement requests does not excuse an employer from responsibility to pay. Employees generally have three years to submit expenses for reimbursement.

Severance Pay and Final Paycheck Rules in California

Your company may also choose to offer employees severance packages at termination. Because severance is not a requirement and is generally not considered wages, it is excluded from the final paycheck rules.

In other words, you don't have to pay the employee's severance right away. However, you still have to pay the employee's earnings and accrued vacation and PTO according to the deadlines set out above.

Contact a California Employment Attorney

If you're a California employer with questions about how and when to issue final paychecks to your employees, contact an employment lawyer right away. Failing to meet California's strict guidelines could subject you to serious penalties.