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Dear HRK: As a Multi-State Employer Which Rules To Follow With Final Pay

By February 21, 2023No Comments

Dear HR Knowledge: As a multi-state employer, what state law do we follow when it comes to issuing final paychecks?

Whether you have remote employees peppered throughout the U.S. or have “brick and mortar” physical locations in several states, being a multi-state employer can be confusing. There are so many rules and regulations that businesses must follow, it can be tricky to determine which state or local law applies to each employee.

The general rule of thumb is that employees are subject to the laws of the city, county, or state where they conduct their work, which means that you may be faced with applying different regulations to different employees due to their work location. We are often asked if there is a straightforward way to maintain compliance and help you sleep at night. The best answer is that an employer may apply the most generous law, or the rule that is most favorable to the employee across the organization. This, however, may not be practical, therefore its important to stop and consider what laws may apply to a particular employee, which can be a bit gray, especially with hybrid employees.

When it comes to payroll practices, employers must examine the state and/or local wage and hour laws where the employee conducts their work. When an employment relationship ends, whether it be on a voluntary or involuntary basis, employers need to ensure they are following the timing rules for issuing final paychecks to their departed employees. Each state has a different set of rules regarding when the employee must receive all wages earned through their last day of employment; these rules generally also apply to commissions, bonuses, and accrued and unused paid time off.

Some states do not have a timing requirement regarding an employee’s final pay or unused and owed vacation time. That said; most states do, and they may differ if the employee resigns, or the organization lets the employee go. For example, California’s final paycheck rules take it a step further — final pay timing is based on the amount of notice the employee provides their employer prior to leaving the organization.

The key to adhering to final pay rules is proper planning since following all regulations is essential to avoid potential claims for late wage payments. The practice for some multi-state employers may be to issue final pay in accordance with their normal pay cycle, but for those that are expanding their presence in other states, it is important to verify specific state laws when issuing final pay. For example, many states such as California, Colorado, and Massachusetts require final pay, including accrued and unused paid time off, to be issued immediately upon involuntary separation. Best practice regardless of what state you operate in, is to work with your payroll provider to ensure you can meet final pay deadlines; in some instances, the timing of final pay may require you to cut a physical check or run a separate payroll.

Like most HR compliance answers there are many nuances when it comes to state wage and hour rules, but one rule that always applies to final pay is that employers may not withhold unpaid wages that are due or make an employee’s paycheck conditional.

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This content is provided with the understanding that HR Knowledge is not rendering legal advice. While every effort is made to provide current information, the law changes regularly and laws may vary depending on the state or municipality. The material is made available for informational purposes only and is not a substitute for legal advice or your professional judgment. You should review applicable laws in your jurisdiction and consult experienced counsel for legal advice. If you have any questions regarding this advisory, please contact HR Knowledge at 508.339.1300 or email us.