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Avoiding the Pitfalls of Final Pay

By Elizabeth M. Rice, SPHR

Final pay laws can be very confusing; they not only vary by state, but provisions within each state can differ as well, depending on the nature of the exit; and whether the employee was laid off, fired, or quit without advanced notice. Most often, final wages are due immediately or following the employee's departure. In many states, the payment is due by the next regularly scheduled payday, while in others, it is to be paid in a particular number of days (usually fifteen or less). In a few states, final pay is due immediately. To get a better understanding of the rules regarding final pay, we interviewed Margi Bell, Attorney at Gordon & Rees, LLP.

Technically speaking...
California Labor Code section 201 states, that except for limited exceptions, the wages earned and unpaid at the time of discharge are due and payable immediately. This includes an involuntary termination and a layoff where the employee does not have a specific return date. Furthermore, California labor Code section 202 states that when an employee who is not subject to a contract quits, all wages are due within 72 hours unless the quitting employee has given 72 hours or more notice; in which case, the employee must be paid by the last day of work. Code 201 & 202 apply only to those in an employment relationship and to those who quit or are terminated. It doesn't matter how long the employee was employed with the company or if the employment was for a specific assignment or term.

Under Labor Code 203, if the employer fails to timely pay wages upon an employee's departure, the employee can be subjected to a penalty in the amount of the employee's daily wages for each day the total amount remains unpaid up to 30 days. Margi refers to the example of Smith v. Superior Court. Smith, L'Oreal USA hired the plaintiff for one day to work as a hair model at a show. L'Oreal agreed to pay $500 for the one day's work. The plaintiff was not paid until over two months later and filed a class action lawsuit. Among her claims she sued for $15,000 in waiting time penalties for the alleged violation of Labor Code sections 201 and 203.

Simply Speaking...
Failing to comply with the California final pay law can be costly. If the final paycheck does not include all wages due, including accrued and unused vacation, the employee can seek waiting time penalties. Moreover, an employee can seek such penalties by way of a claim before the Labor Commissioner or in a civil lawsuit. Employees may also file wage claims with the Department of Labor (DOL) or Superior Court, and if successful, may be awarded the wages claimed due, liquidated damages, and attorney's fees. Depending on the type of complaint, their filing may also prompt a companywide audit by the DOL, which could end in additional wage claims and civil fines and penalties.

Moving forward...
Properly handling final pay is not difficult if employers simply follow the rules. Margi offers the following suggestions to keep employers, inside and outside of California from facing legal and financial penalties due to mishandling final pay:

• Make timely payment of all wages, including vacation time, to departing employees
  
  
• Keep accurate records of hours worked and overtime
  
  
• Pay employees for all hours worked at the appropriate rate by their departure date
  
  
• Make sure your vacation policy does not require employees to improperly forfeit their vacation pay
  
  

Despite the heavy consequences resulting from abusing the laws of final pay, many employers do not obey the rules. Some do this out of ignorance, believing that paying employees on the usual payroll schedule will suffice. Others may choose not to abide by the laws because they are upset at a worker that left the company on a bad note. Regardless of the situation and the hard feelings that may be present at the time, it's best for employers to act professionally and make an effort to follow the policies on final pay. In addition to avoiding court time and legal fees, you will strengthen company morale by demonstrating a peaceful employee exit strategy.