Many human resource leaders say laying off employees is one of the most challenging aspects of the job. Whether the employee leaves voluntarily or not, dealing with turnover comes with the HR territory, and most businesses have procedures in place to ensure there’s a smooth transition — and prevent any drama when employees depart.
These procedures usually take the form of an exit interview with the employee or a broadcast email to notify your organization of the staff change. And in many instances, the process also includes ensuring that the employee receives their final paycheck, as well as determining whether severance pay is necessary. Some states have unique requirements about how to handle these final paychecks.
Continue reading for a deeper dive on how severance pay works — or if you’re just here to ensure your company remains compliant with final paycheck requirements, click on the state where you do business in the map below.
What are the 2022 state-by-state final paycheck laws?
Severance pay: what is it and how does it work
Simply put, severance pay is money or benefits an employer offers an employee who is leaving the company and is typically granted upon termination. There are several instances related to employee termination where severance pay applies. For example, employers can choose to extend severance because of a:
- Mutual agreement to part ways
Additionally, severance pay is negotiable and can be scaled depending on several factors including the employee’s years of service with the company or their level of seniority. Additionally, employees typically are required to have 21 days to consider the contents of an agreement.
There’s no federal or state legislation requiring employers to offer severance pay (although we’ll discuss a potential scenario below), but many do opt for it. Additionally, there are no requirements for severance pay under the Fair Labor and Standards Act (FLSA).
An example of when severance pay may come into play is when employers require employees to sign a release preventing them from pursuing any legal action against the business in the future. In exchange for signing such an agreement, the employee may be offered severance pay, which can potentially save your company headaches in the long run.
In other instances, companies may offer severance pay to keep the separation from the employee amicable, ending the working relationship on positive terms as both parties look ahead.
Severance pay may also be offered to employees who retire or to those whose jobs are eliminated amid downsizing.
When might severance pay be required?
Although severance pay is not required in the majority of cases, the WARN Act (Worker Adjustment and Training Notification) does outline a few situations in which employees can legally be entitled to severance pay in the form of back pay and benefits.
Depending on the size of your business, laying off a certain number of employees requires you to give them at least 60 calendar days (as opposed to business days) notice. If an employer fails to give notice in time, employees are then legally entitled to severance pay. Here’s a breakdown of all the situations in which the WARN act would apply:
- The company employs 100 or more full-time workers (not counting employees who have worked less than six months or part-time workers) and an employment loss affects: at least 50 people at a single site of employment; or a mass layoff affecting at least 50 employees and one-third of the worksite’s total workforce.
- The company lays off 500 or more employees (not including part-time workers) at a single site of employment during a 90-day period.
- The company lays off 50-499 workers (not including part-time workers) and these layoffs constitute 33% or more of the employer’s total active workforce (not including part-time workers) at the single site of employment.
You can also reference this employer guide developed by the Employment and Training Administration for more information on the scenarios listed above.
So, if you find yourself in a position where you foresee a big employment cut, make sure to give your employees 60 days’ notice so you still have the option to decide if severance pay is something you may want to consider.
Severance pay versus final paychecks: what’s the difference?
Severance is paid out for a certain period of time after the loss of employment, and the amount received varies depending on the industry, role, and the amount of time the employee was employed at the company.
For example, an employer may offer a week or two of salary for every year of employment. And, severance pay can also be negotiated, so employees might often negotiate the amount based on how long they’ve been at the company, their position or rank, or whether or not you included language on severance in the initial employment contract.
Conversely, final paychecks are not negotiable and are required to be paid out. Final paycheck laws vary from state-to-state, but it is required that you don’t withhold unpaid wages that are due to the employee, whether it was their choice to leave or yours.
Final paychecks also often include unused PTO days (depending on company policy), bonuses, or commissions owed. Laws from state-to-state can vary depending on whether the employee quit or was terminated. Below is the 2022 state-by-state breakdown, with links included to the individual state websites — or statutes — where applicable.
Note: When referencing the chart below, a “business day” is defined as any day in which normal business operations are conducted. Generally, business days are considered to be Monday through Friday and exclude weekends and public holidays.
|State||Final wages, if employee quit||Final wages, if employee fired|
|Alabama||No law||No law|
|Alaska||Next scheduled payday that’s at least three (3) days after the employee gives notice||Within three (3) working days of termination|
|Arizona||Next scheduled payday||Whichever is first: within seven (7) business days or next payday|
|Arkansas||Next scheduled payday||Next regular payday. If payment is not made within seven (7) days of the next regular payday, employer must pay double the wages due.|
|California||Within 72 hours or at the time of quitting||Immediately|
|Colorado||Next scheduled payday||Immediately|
|Connecticut||Next scheduled payday||Next business day|
|Delaware||Next scheduled payday||Next scheduled payday|
|District of Columbia||Whichever is first: within seven (7) days or next payday||Next business day|
|Florida||No law||No law|
|Georgia||No law||No law|
|Hawaii||Immediately or next scheduled payday, depending on date of final notice||Immediately or next business day if needed|
|Idaho||Whichever is first: 1) within 10 days or next payday, OR 2) if the employee makes a written request for earlier payment, then within 48 hours of receiving the request||Whichever is first: 1) within 10 days or next payday, OR 2) if the employee makes a written request for earlier payment, then within 48 hours of receiving the request|
|Illinois||Next scheduled payday||Next scheduled payday|
|Indiana||Next scheduled payday||Next scheduled payday|
|Iowa||Next scheduled payday||Next scheduled payday|
|Kansas||Next scheduled payday||Next scheduled payday|
|Kentucky||Whichever is later: within 14 days or next scheduled payday||Whichever is later: within 14 days or next scheduled payday|
|Louisiana||Whichever is first: next scheduled payday or within 15 days||Whichever is first: next scheduled payday or within 15 days|
|Maine||Next scheduled payday||Next scheduled payday|
|Maryland||Next scheduled payday||Next scheduled payday|
|Massachusetts||Whichever is first: next paycheck or the Saturday that follows an employee’s resignation||Immediately|
|Michigan||Next scheduled payday||Next scheduled payday|
|Minnesota||Next payday that’s at least five (5) days after an employee’s last day but no more than 20 days after final day||Within 24 hours of receiving written demand from employee|
|Mississippi||No law||No law|
|Missouri||No law||Immediately at the time of dismissal|
|Montana||Whichever is first: next scheduled payday or within 15 days||Immediately, or within four (4) hours or before end of the business day — whichever is first. The employer can maintain a written policy that extends this time to the next payday or within 15 days.|
|Nebraska||Whichever is first: next scheduled payday or within two (2) weeks||Whichever is first: next scheduled payday or within two (2) weeks|
|Nevada||Whichever is first: within seven (7) days or next payday||Within three days|
|New Hampshire||Next scheduled payday or within 72 hours (if employee gave at least one pay period’s notice)||Within 72 hours of time of termination|
|New Jersey||Next scheduled payday||Next scheduled payday|
|New Mexico||Next scheduled payday||Within five (5) days|
|New York||Next scheduled payday||Next scheduled payday|
|North Carolina||Next scheduled payday||Next scheduled payday|
|North Dakota||Next scheduled payday||Next scheduled payday|
|Ohio||No law||No law|
|Oklahoma||Next scheduled payday||Next scheduled payday|
|Oregon||Immediately if the employee gave 48 hours’ notice. Otherwise within five (5) days or next regular payday, whichever comes first.||Next business day|
|Pennsylvania||Next scheduled payday||Next scheduled payday|
|Rhode Island||Next scheduled payday||Next scheduled payday|
|South Carolina||Within two (2) days or by the next regular payday||Whichever is first: within 48 hours or next scheduled payday|
|South Dakota||Next scheduled payday or when employee returns company property||Next scheduled payday or when employee returns company property|
|Tennessee||No later than next regular payday or within 21 days, whichever occurs last||No later than next regular payday or within 21 days, whichever occurs last|
|Texas||Next scheduled payday||Within six (6) days|
|Utah||Within 24 hours||Within 24 hours|
|Vermont||Whichever is first: next scheduled payday or next Friday||Within 72 hours|
|Virginia||Next scheduled payday||Next scheduled payday|
|Washington||On or before next scheduled payday||On or before next scheduled payday|
|West Virginia||On or before the next scheduled payday||Next scheduled payday|
|Wisconsin||Whichever is first: next scheduled payday or within 31 days||Whichever is first: next scheduled payday or within 31 days|
|Wyoming||Next payday||Next payday|
When dealing with offboarding employees — whether they are leaving voluntarily or not — make sure you’re aware of the final paycheck laws in your state to avoid any challenges. And in cases where you need to lay off an employee (or multiple), considering severance pay as an option can help you avoid any disputes in the future, while also providing financial support for your former employees as well.
Please note all material in this article is for educational purposes only and does not constitute tax or legal advice. You should always contact a qualified tax, legal or financial professional, in your area for comprehensive tax or legal advice.