When it comes time for an employer and employee to part ways, one of the top things an organization needs to be aware of is the final paycheck. Final pay state laws vary, with stipulations based on whether the separation is voluntary or involuntary.
It’s important to be aware of both Federal and State laws to ensure you provide employees with their earned wages within the required timeframe. While Federal law and the Department of Labor require businesses to establish regular paydays and compensate employees by that day, they do not require final wages be immediately paid upon separation. Your state typically sets this requirement.
Remember, employers cannot withhold an employee’s final paycheck under any circumstances, even if they fail to sign their timesheets or don’t attend an exit interview. If you refuse to pay final wages, you could be forced to pay a waiting time penalty and other fines.
Final paychecks must include all earned, unpaid:
- Wages
- Commissions
- Bonuses
- Accrued sick and vacation time
Read on to find out what employers can and cannot deduct from final paychecks and a quick breakdown of the laws for Maine, New Hampshire, and Massachusetts employers.
What about final paycheck deductions?
Employers can only withhold mandatory deductions from final paychecks, such as federal income tax, Social Security tax, Medicare tax, state-mandated taxes, and applicable wage garnishments.
Voluntary deductions like medical and dental benefits depend on company policy. Additional deductions must be permitted by the employee for their benefit via specific written authorization.
Can an employer deduct a negative leave balance from an employee’s final paycheck?
Deducting a negative leave balance from an employee’s final paycheck is a separate and touchy topic—which is why we hear this question frequently. The answer largely comes down to exempt vs. nonexempt employees.
Nonexempt Employees
Federal law allows employers to make a deduction from a nonexempt employee’s final pay to recover a negative paid-leave balance. Guidance from the Department of Labor (DOL) says deducting advanced paid leave from a nonexempt employee’s final pay is permissible when:
- Employers inform employees before leave is advanced that the deduction will be made; and
- The deducted amount reflects the employee’s pay rate at the time the advanced leave was taken.
Why are negative leave balance deductions allowed for nonexempt employees? A leave advance is viewed as a loan or cash advance, which the employer can recoup even when the deduction drops the employee’s pay below minimum wage.
Some state laws do not allow such deductions, while others require prior, signed authorization. Always check your state’s laws to ensure compliance.
Exempt Employees
Deducting negative paid-leave balances from exempt employees’ final paychecks is not recommended. Exempt employees’ salary cannot go below the minimum salary set by the Fair Labor Standards Act (FLSA) except in limited situations.
Only full-days off qualify as allowable deductions. The FLSA states that partial days off can never be deducted from an exempt employee’s pay. For example, if you advance an exempt employee five half days of paid leave, you cannot deduct that amount from their pay.
The Family and Medical Leave Act (FMLA) does provide an exception allowing for partial-day pay deductions for covered absences, but there is no specific guidance stating that an employer may recover leave advanced for partial-day FMLA absences. Consult your legal counsel in these situations.
If your company does want to deduct negative leave balances for full-day increments from exempt employees, you would need to:
- Keep very detailed, accurate records separating negative leave hours for partial-day absences (not allowed) from negative leave hours for full-day absences (allowed); and
- Track the rate of pay at which each day of leave was advanced so that the appropriate amount is deducted.
This level of recordkeeping is laborious and rare. Plus, your state wage payment and deduction laws may prohibit negative leave balance deductions or impose even more requirements—hence why these deductions are not advisable for exempt employees’ final pay.
Maine
Employees who are fired, discharged, terminated, or laid off
Maine employers must pay terminated or laid off employees all wages due by the next regularly scheduled payday OR within two weeks of the employee’s demand for payment, whichever comes first.
Employees who quit
A Maine employee who quits is entitled to their final paycheck no later than the next regularly scheduled payday OR within two weeks of demand for payment, whichever is earlier.
Employees who are suspended or resign due to a labor dispute (i.e., strike)
In this case, the employer must pay the employee all wages due by the next regular payday OR within two weeks of the employee’s demand for payment, whichever occurs first.
Massachusetts
Employees who are fired, discharged, terminated, or laid off
A Massachusetts employer must pay the terminated employee all wages due on the day of the discharge.
One exception is Boston, where terminated employees must be paid as soon as the employer has complied with laws requiring payrolls, bills, and accounts to be certified.
Employees who quit
Employers must pay employees who quit all earned wages due by the next regular payday OR, if the employer does not have a regular payday, on the next Saturday.
Employees who are suspended or resign due to a labor dispute
While Massachusetts does not have a law regarding final pay to a worker whose employment ends due to a labor dispute, employers should pay these employees no later than the next regular payday or on the next Saturday to ensure compliance with State laws.
New Hampshire
Employees who are fired, discharged, terminated, or laid off
A New Hampshire employer must pay a discharged employee all wages due within 72 hours. Employees who are laid off must be paid by the next regular payday.
Employees who quit
If the employee…
- Gives the employer at least one pay period’s notice of their resignation, the employer must pay all wages due within 72 hours.
- Has not given at least one pay period’s notice of their intention to quit, the employer must pay the employee by the next regular payday.
Employees who are suspended or resign due to a labor dispute
If an employee leaves because of a labor dispute, the employers must pay them by the next regular payday.
Do you need assistance with navigating the final pay state laws? Our team of HR experts will be happy to review the details with you and ensure your company remains compliant with both Federal and State requirements. Contact us today at 603-818-4131 or info@bluelionllc.com to learn more.
The information on this website, including its newsletters, is not, nor is it intended to be, legal advice. You should contact an attorney or HR specialist for advice on your individual situation.
