Final Pay

What Is Final Pay?

Final pay refers to all wages and compensation owed to an employee when their employment ends, whether through termination, resignation, or any other separation. California has some of the strictest final pay requirements in the nation, with specific deadlines that depend on the circumstances of the employment separation.

Under California Labor Code Sections 201-203, employers must pay all earned wages to departing employees within strict time limits. Failure to comply can result in substantial waiting time penalties that can add up to 30 additional days of wages to what the employer owes.

California Final Pay Deadlines

Immediate Payment Required

Separation Type	Deadline	Legal Basis
Involuntary termination (fired)	Immediately at time of termination	Labor Code 201
Layoff	Immediately at time of layoff	Labor Code 201
Seasonal employment ending	Within 72 hours	Labor Code 201
Motion picture industry	Next regular payday	Labor Code 201.5

72-Hour and 24-Hour Rules

Separation Type	Notice Given	Deadline	Legal Basis
Voluntary resignation	Less than 72 hours	Within 72 hours of resignation	Labor Code 202
Voluntary resignation	72 hours or more	On last day of work	Labor Code 202
Employee quits without notice	N/A	Within 72 hours	Labor Code 202

What Must Be Included in Final Pay

California requires that final pay include all earned compensation, not just regular wages:

Mandatory Components

Regular wages for all hours worked through the last day
Overtime pay for any overtime hours worked
Accrued vacation time (California treats vacation as earned wages)
Earned bonuses that are non-discretionary
Commissions that have been earned
Expense reimbursements that are due
Piece-rate compensation for all completed units

Commonly Overlooked Items

Component	Requirement
Unused vacation	Must be paid out at current rate
Floating holidays	If treated as vacation time, must be paid
Earned PTO	Must be paid at separation
Pro-rated bonuses	If non-discretionary and earned
Accrued sick leave	Not required to be paid out (unless employer policy states otherwise)

How to Calculate Final Pay

Step-by-Step Calculation

Example: Employee terminated on Wednesday, January 15

Calculate regular hours worked
- Hours worked: Monday (8), Tuesday (8), Wednesday (4) = 20 hours
- Regular rate: $20/hour
- Regular wages: 20 x $20 = $400
Add overtime if applicable
- Daily overtime hours: 0
- Overtime wages: $0
Calculate vacation payout
- Accrued vacation: 40 hours
- Vacation payout: 40 x $20 = $800
Add any earned commissions or bonuses
- Earned commission: $500
Total final pay
- $400 + $800 + $500 = $1,700

Vacation Payout Rules

California law requires that all accrued, unused vacation time be paid out at the employee's final rate of pay:

Vacation time vests as it is earned
"Use it or lose it" policies are illegal in California
Vacation caps are permitted, but forfeiture is not
Rate used is the employee's final regular rate of pay

Location and Method of Payment

Where to Deliver Final Pay

Termination Type	Payment Location
Involuntary termination	At the place of termination
Voluntary resignation	At the office or designated pay site
Employee request	Mailed to employee's designated address
Direct deposit	Employee's bank account (if previously authorized)

Acceptable Payment Methods

Paper check
Payroll card (if previously agreed)
Direct deposit (if employee previously authorized)
Cash (though not recommended for documentation purposes)

Important Notes

The employee may request final wages be mailed
If mailed, the employer must mail by the deadline (postmark counts)
Employer cannot delay payment to receive company property
Employer cannot condition payment on signing a release

Common Final Pay Mistakes

Timing Errors

Mistake	Consequence
Waiting until next regular payday	Waiting time penalties accrue immediately
Processing through normal payroll cycle	Up to 30 days additional wages owed
Delaying for expense report submission	Penalties begin at deadline
Holding check until exit interview	Violation begins immediately

Calculation Errors

Failing to include accrued vacation time
Using wrong rate for vacation payout
Not including earned commissions
Missing overtime for final work period
Deducting for unreturned equipment without authorization

Deduction Errors

Employers cannot make unauthorized deductions from final pay:

Illegal deductions: Cost of tools, uniforms, cash shortages, damaged equipment
Legal deductions: Taxes, court-ordered garnishments, authorized benefits
Gray area: Equipment not returned (requires prior written authorization)

Special Situations

Temporary and Seasonal Workers

Employees of temporary services agencies and seasonal workers are entitled to final pay within 72 hours of termination, with some specific rules:

Temporary agency workers: Payment due from the agency
Seasonal workers: 72-hour rule applies at season end
Day laborers: Payment due at end of each day

Group Layoffs

For layoffs of 100+ employees at a single location:

Standard final pay rules still apply
Additional WARN Act requirements may apply
Each individual employee must receive timely payment

Employee Death

When an employee passes away:

Wages up to $18,400 (as of 2024) can be paid to surviving spouse or children
Larger amounts require probate court proceedings
Payment should be made within reasonable time

Disputed Wages

If there is a good-faith dispute about wages owed:

Employer must pay undisputed amounts by deadline
Disputed amounts can be resolved separately
Employer must document the dispute thoroughly
Dispute does not excuse late payment of undisputed wages

Employer Compliance Checklist

Before Employment Ends

Calculate all regular wages earned
Determine accrued vacation balance
Verify any earned bonuses or commissions
Check for outstanding expense reimbursements
Identify applicable deadline based on separation type

At Separation

Prepare final itemized wage statement
Include all required payment components
Deliver payment by applicable deadline
Document delivery method and timing
Provide required separation notices

Required Notices at Separation

California employers must provide:

Notice	Purpose
Change of Status Notice	Inform of separation
COBRA Notice	Health insurance continuation
EDD pamphlets	Unemployment and disability info
Health Insurance Premium Payment (HIPP) Notice	Coverage options

Penalties for Late Final Pay

Failure to pay final wages on time triggers waiting time penalties:

Rate: Employee's daily wage rate
Maximum: 30 days of wages
Calculation: Continues until paid or 30 days, whichever is first
Example: $200/day x 30 days = $6,000 maximum penalty

Additional Exposure

Beyond waiting time penalties, employers face:

Interest on unpaid wages
Attorney fees if employee prevails in lawsuit
Civil penalties under PAGA
Potential Labor Commissioner citations

Best Practices for Final Pay Compliance

Establish Clear Procedures

Document your process for handling terminations
Train managers on final pay requirements
Create checklists for payroll staff
Maintain emergency procedures for unexpected terminations

Use Technology Effectively

Modern payroll systems can help ensure compliance:

Automated vacation accrual tracking
Quick final pay calculation tools
Electronic delivery options
Documentation and audit trails

Plan for Common Scenarios

Scenario	Preparation
Termination for cause	Keep final checks ready; process immediately
Voluntary resignation	Track notice period; prepare check for last day if 72+ hours notice
Position elimination	Process all final pays before employees leave
Seasonal end	Batch process within 72-hour window

California vs. Federal Requirements

California's final pay rules are significantly stricter than federal law:

Requirement	Federal Law	California Law
Termination	Next regular payday	Immediately
Resignation	Next regular payday	72 hours (or last day with notice)
Vacation payout	Not required	Required
Waiting time penalty	None	Up to 30 days wages

California employers must follow the stricter state requirements regardless of federal law.