Originally posted on https://www.defendmybiz.com/california-final-paycheck/
There are roughly 3.6 million small businesses in California and you can bet that dealing with all the rules and regulations regarding employees are some of the least favorite aspects for most employers.
That’s because (as you know) the State of California has VERY strict employment laws.
Most of these laws, like what constitutes employee discrimination, you might be familiar with. Or, at least, you should be.
But one often overlooked law, is actually the strictest in the nation right here in California and involves a former employee’s final paycheck. It’s also one of the most confusing.
We’re going over everything you need to know about paying a final paycheck to a former employee below.
It goes without saying, that even when you’ve decided to let an employee go, you must follow the law.
Yes, California is an at-will state, but there are exceptions.
You may not terminate someone:
This is important because if you did unlawfully terminate an employee, you may have to pay damages.
You also may not withhold their final paycheck out of vindictiveness or because they’ve filed a complaint against your company.
In California, the timeframe you have to give a former employee their paycheck depends on whether they quit or you terminated them.
If you discharged the employee, for any reason, you must pay them all wages at the time of their dismissal. The same applies to employees you lay off.
This means, that you must pay them everything you owe them before they leave the premises.
This also includes any accrued sick time, unused vacation, bonuses, commission, overtime pay, or PTO.
While other states allow employers to set their own rules regarding unused or accumulated vacation time, California considers this earned compensation.
While you must pay a final paycheck to a terminated or laid off employee immediately, the law is different if they left on their own accord.
If the employee quits, their final paycheck depends on how they quit.
If the employee gives 72 hours notice and quits on the final date of their notice, you must pay them all wages owed on that day.
That includes any monetary benefits already discussed like accrued sick time, vacation, etc.
If the employee walks out, you don’t have to provide them with an immediate final paycheck. In this situation, you have 72 hours to give them their final paycheck.
However, they can request that you mail their final paycheck to them. The date you mail the final paycheck is considered the date of payment.
This is your proof you’ve provided the final paycheck in the timeframe according to the law.
Some employers make the unfortunate mistake of trying to test the system. Instead of following the law and providing the final paycheck in the lawful timeframe, they play a game of chicken with their former employee.
Don’t do this.
Your former employee doesn’t need to hire a lawyer to get you in hot water. All they have to do is call the State of California Division of Labor Standards Enforcement (DLSE).
If you’re withholding a final paycheck, you will have steep fines levied against your business.
Your penalty is the former employee’s average daily wage (when they worked for you) for each day you withhold the final paycheck. This is up to 30 calendar days.
Here’s how the daily wage gets calculated:
For full-time employees who work eight hours per day, five days per week, your waiting time penalty will be their rate of pay times eight.
For example, if the former employee made $12.00/hour and worked eight hours per day, they have a daily wage of $96.00. If you withhold their final pay for 10 days, your penalty is $960.
The waiting time penalty for part-time employees gets based on the daily rate they usually receive. In other words, if the former employee worked four hours a day at $12.00 an hour, the daily penalty imposed is $48.
Overtime only gets included if it’s regular and scheduled. So, if the former employee earned an hour overtime once due to staying late or coming to work early, it won’t get calculated into the waiting penalty.
However, if the former employee worked overtime on a regular basis, that would factor in.
As an example, if they worked 45 hours every week, your daily waiting time penalty is eight hours at $12 ($96) and one hour at $18 per day. For a daily total of $114.
The only exception to the waiting time penalty is if you and your former employee are engaged in a good faith dispute. If you feel you will enter this type of dispute, make sure you speak with a knowledgeable California labor attorney.
If you only pay your former employee partial compensation, you’re liable for the waiting time penalty.
Say you only pay part of what the former employee is owed immediately and pay the balance on your company’s next pay date. You’ll pay the daily penalty until they receive their full compensation.
For example, if you fired them on Monday, and your next pay date is Friday, you owe them four days at their daily rate.
Likewise, if you short them on accrued sick time, unused vacation, etc. and pay it on the next pay date, you’ll pay a daily penalty.
You may be wondering if there’s a statute of limitations as far as the former employee filing a claim against you for not paying them on time. The answer is yes.
In Nov. 2010, the California Supreme Court ruled in Pineda vs. Bank of America that the statute of limitations is three years.
That means that if you decide to play that game of chicken and wait a month to pay your former employee, they have three years to file a claim against you.
Not paying your former employee their final paycheck on time isn’t worth the financial and legal hardship.
While California has strict laws that you may feel are unfair, it doesn’t mean that you can ignore them.
If you’re in a dispute with an employee — current or former — you should seek legal help from a California attorney that specializes in labor law.
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