Do You Know the Final Pay Requirements in California?

We often hear stories about managers who come to their HR or Payroll Departments and say: “Susie resigned, but don’t give her a final paycheck because she still has a company credit card and cell phone and I don’t want to pay her until she returns those items.”

Is this legal? Nope. Employers should be aware that final pay is sacred in California and may not be withheld under most circumstances. Here are some rules of thumb to remember:

Timing of Final Wage Payments:

• An employee who gives at least 72 hours’ prior notice of his or her intention to quit, must be paid all of his or her wages, including accrued vacation or paid time off, on their last day of employment.
• An employee who quits without giving 72 hours’ prior notice must be paid all of his or her wages, including accrued vacation or paid time off, within 72 hours of quitting. The 72 hours includes weekend days. An employee who quits without giving 72-hours prior notice may request that his or her final wage payment be mailed to a designated address. The date of mailing will be considered the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting.
• An employee who is terminated or laid off must be paid all of his or her earned and unpaid wages, including accrued vacation or paid time off, immediately at the time of termination.
• If the employer does not meet the final pay time frame, former employers must pay penalties equal to the equivalent to the employee’s daily wage, for every day the employer has not paid the final wages up to a maximum of 30 days.
• An employee will not be awarded waiting time penalties if he or she avoids or refuses to receive payment of the wages due.

What final wages must be Paid?

• All wages, accrued vacation or paid time off, any commissions that are due.

Place of Final Wage Payments:

• The place of the final wage payment for employees who are terminated (or laid off) is the place of termination. The place of final wage payment for employees who quit without giving 72 hours prior notice and who do not request that their final wages be mailed to them at a designated address, is at the office of the employer within the county in which the work was performed.
• Direct deposits of wages to an employee's bank that were previously authorized by the employee are immediately terminated when an employee quits or is discharged, and the payment of wages upon termination of employment. Employees may voluntarily authorize to receive their final pay as a direct deposit as long as the employer complies with the timing rules listed above.

Employee Wage Disputes:

• If a good faith dispute exists concerning the amount of the wages due, no waiting time penalties would be imposed. A "good faith dispute" that any wages are due occurs when an employer presents a defense, based in law or fact which, if successful, would preclude any recovery on the part of the employee.
• Even if there is a dispute, the employer must pay, without requiring a release, whatever wages are due and not in dispute. If the employer fails to pay what is undisputed, the "good faith" defense will be defeated whatever the outcome of the disputed wages.

We often hear of situations where the Payroll Department is scrambling because an employee resigned a week ago and stopped working, but the manager never notified HR or Payroll of the resignation.

In this case, unfortunately, the safest route for the employer is to pay all final wages, accrued vacation or paid time off and waiting period penalties through the date that the final wages are paid. This does result in paying the employee an extra week post the last day they worked, however, if the employee files a complaint with the DLSE, they would be rewarded that pay by the agency.

Failure to pay employees correctly and timely when they are leaving the company can be costly. Employers should ensure that their procedures are compliant with the state law and their managers understand the requirements.

Lauren Sims is the author and a principal HR Consultant with eqHR Solutions.

Whenever you require HR or Payroll advice or help navigating the ever-changing landscape of California and Federal Employment Laws and Regulations, call us for a no obligation consultation.

eqHR Solutions is a leading human resources and payroll consulting firm, providing tactical and strategic human resources employment support and ADP payroll product training. Services are provided for all size businesses in Southern California and the San Francisco / Bay area.