Determination

• You’re supposed to pay all compensation due to the employee within the timeframe mandated by state law. This includes regular and overtime wages, salaries and payments established by company policy or a collective bargaining agreement, such as commissions, bonuses, severance and holiday pay, and vacation, sick and personal pay, provided the employee has the time available. Check with the state labor department for final paycheck due dates and pay the employee accordingly. For example, if state law says you must pay dismissed employees within 72 hours of separation, do so. If you agreed to pay certain severance to certain laid off employees, pay it according to the agreement. Further, if company policy says employees who resign and give at least two weeks' notice should receive accrued vacation pay, follow the policy.
  
  

Allowed Deductions

• Though you are not supposed to withhold an employee’s final paycheck, you can make deductions from final wages, if the state allows it. The state may permit you to deduct for failure to return – or damage to – company property, and may allow you a certain timeframe in which to make the necessary payroll adjustments. Further, if the employee has a paycheck loan or advance, you may be allowed to deduct the balance from final wages. Some states forbid deductions from final wages unless the employee gives written consent; others permit deductions as long as the employee’s wages do not fall below the required minimum wage. It is, therefore, imperative that you consult with the state labor department for permissible deductions from final paychecks.
  
  

Permissible Withholding

• An employee’s final paycheck is subject to applicable withholding taxes, which includes federal income tax, Medicare tax, Social Security tax and applicable state and local taxes. Additional mandatory withholding may apply. For example, final wages are subject to wage garnishment and child support withholding and state disability insurance, if applicable. Deductions from final wages for voluntary benefits, such as retirement and health plans, depend on company policy.
  
  

Penalties

• If you withhold an employee’s final paycheck and fail to pay it by the required timeframe, the employee can file a wage claim with the federal or state labor department, or a lawsuit in court. If the department or court agrees with the employee’s claim, you may be ordered to pay him unpaid wages and, depending on the situation, liquidated damages, which can amount to double or triple back pay, a waiting time penalty, plus reasonable court or attorney fees. The federal or state government may also impose civil and criminal penalties.