Question:

I understand that Governor Schwarzenegger has signed a bill that changes the rules regarding providing employees a final paycheck. What are proper steps to follow with respect to the payment of final wages when an employee has either been terminated or quits without notice?

Answer:

The general rule with respect to the payment of wages upon termination is that all wages earned and unpaid at the time of termination are due and payable immediately. This means that you must have the final paycheck ready to hand to the employee when you inform the employee of his or her termination. The paycheck must cover all wages earned and unpaid up to the time of termination, and must also include all vacation and other paid time off benefits that the employee has accrued through the date of termination. Accrued sick leave does not have to be paid at the time of termination, unless it is your policy to do so. However, any commissions or bonuses already earned by the employee must be paid at the time of termination.

The general rule when an employee quits without notice is that the employer must pay the employee his or her earned wages within 72 hours. Payment by mail is permissible upon employee request, but the 72-hour rule still applies. The date the employer mails the check is deemed the date of payment for purposes of this rule. If the employee gives 72-hours notice of his or her intention to quit, the employer must pay the employee’s wages on the employee’s last day of employment.

Existing law provides that even where an employee has voluntarily authorized the employer to directly deposit his/her wages into a bank account, once that employee is discharged or quits the authorization for direct deposit is deemed to have been terminated. Under these circumstances, the employer must either hand the employee the final paycheck at the time of termination, or as noted above, make arrangements to mail the employee his/her final paycheck.

In contrast to the existing rule, AB1093, which was signed by the Governor on September 8, 2005 and which becomes effective on January 1, 2006, instead provides that employers that have received prior authorization to directly deposit wages may directly deposit an employee’s final paycheck. According to the California Chamber of Commerce, this change in the law has advantages for both employers and employees. Employees benefit from the fact that their final wages will be available for immediate use. From the employer’s perspective, this represents a more efficient way to provide the discharged employee with his/her final paycheck in a timely fashion.

Employers that willfully fail to pay an employee’s final wages when due may have to pay statutory “waiting time” penalties in addition to the amount of wages owed. The “waiting time” penalty requires that the employer continue to pay the wages of the employee from the date that the employee’s wages were due until the date they are paid, for up to a maximum of thirty (30) days. For example, if an employee resigns with 72 hours notice on the 1 st day of the month, and the employer refuses to pay him his earned but unpaid wages until the 15 th of the month, the employer may be ordered to pay the employee his regular wages for fifteen days as a “waiting time” penalty. In order to avoid incurring such penalties, employers must be sure to comply with the rules regarding prompt payment of wages upon termination.

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