State and Federal Laws on Final Paychecks

 In Employees, Human Resources, Payroll, Tax Compliance

Unlike federal law, most states have detailed rules on final wages…

The Fair Labor Standards Act (FLSA), which establishes federal minimum wage and overtime laws, does not require that employers give departing employees their final wages immediately. In general, however, wages covered by the FLSA must be paid by the next regularly scheduled payday. So, if a former employee has not been paid by the next regularly scheduled payday, he or she can rightfully contact the U.S. Department of Labor for assistance in recovering final wages. Unlike federal law, most states have detailed rules on final paychecks.

State Law at a Glance

Final paycheck rules vary by state. In California, if an employee is fired or laid off, he or she must receive final wages immediately upon termination. If an employee quits, final wages must be paid within 72 hours, or right away if the employee gave at least 72 hours of notice. In Michigan, final wages generally are due by the next regularly scheduled payday, regardless of whether the employee voluntarily left the company or was discharged.

Other factors may influence when final paychecks are due, such as the employee’s industry and whether or not the worker is seasonal. State law also may dictate how final wages should be paid and whether direct deposit is acceptable for making that payment.

Ordinarily, final wages include any payment owed to the employee at the time of his or her departure. To know what constitutes final wages in your state, consult the state labor department. In Texas, final wages include regular and overtime wages, vacation pay and other fringe benefits, severance pay due under a written policy, and any bonuses or commissions payable under a written or oral agreement.

Even if state law does not require payment of fringe benefits, employers should honor any agreements made, as the employee can file a lawsuit to recover unpaid benefits.

No State Law? Then Company Policy Rules

As noted, whether or not certain types of payments should be included in final wages may depend on the company’s written policy. This is also true if the state has no statute regarding final wages, in which case, company policy governs. For example, company policy may say that employees who resign must give at least two weeks’ notice to receive a payout of their accrued vacation.

You cannot withhold final wages simply because state law does not specify how they should be handled. Separated employees must receive any wages owed to them.

Also, it’s important to know which deductions you’re allowed to make from final wages. Under federal law, legally required deductions, such as payroll taxes and wage garnishments, can be taken from final wages, even if they cut into the federal minimum wage. The state may have specific rules about the types of deductions that cannot be taken if they will cause the employee’s wages to fall below the minimum wage.

Contact us today for additional information about handling final paychecks.

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