Okay, They’re Fired. Now What?

When it’s time to go your separate ways with an employee, final pay and PTO payout laws are probably the last thing on your mind. But you can’t forget them. Your state may have very specific rules about submitting final pay when someone quits or is fired… and the way you handle it can differ depending on what happened at the end. Paying out accrued paid time off (that’s “PTO” if you’re in a hurry) could be mandatory, too. But sometimes it’s not. Frankly, it’s confusing, and getting it wrong could be expensive. So study up now before you find yourself in a compliance mess.

What Happens When an Employee Leaves?

At the time of termination or when an employee hands you their notice, think back to your policies. What does your employee handbook say about PTO accruals and payouts? Did you ever determine when and how an employee will receive their last paycheck? Final pay and PTO payout laws are strict, and they vary a lot depending on the state, the situation, and what’s in those policies. 

Like Colorado, for example. If you fired an employee, you have to hand over their final paycheck on the spot. If they quit, you have until the next payday. Either way, it’s a PTO payout state (but not sick leave) because they consider it wages. Other states, like Wisconsin, don’t particularly care about these kinds of details. Check your state’s laws so you can cut ties with less confusion.

How Does Your State Require You To Handle Final Pay?

Several states just defer to the Department of Labor guidelines for last paychecks: send it out on the next regularly scheduled payday. A few states say “on or before” the next payday, just to make sure it goes out promptly.

Other states are more opinionated. These states require you to pay employees who quit within a specific (usually narrower) window:

Things get a little murkier when employees are terminated. These states want you to pay fired employees extra fast:

If you’re able to pay on the spot, that’s probably your safest move. No state asks you to pay faster than immediately!

Which States Have PTO Payout Laws?

Federally, PTO is the wild west. Each state sets its own rules, so compliance with final pay and PTO payout laws can get pretty tricky — especially if you have multiple locations that cross state lines.

Some states require you to pay out PTO no matter what. Doesn’t matter what your practice’s policies are, doesn’t matter if they signed it all away. These states consider accrued PTO as wages, so if you offer it, you must pay for it when they quit or are fired. There are some variations to this rule, like if the employee worked for less than one year, gave you a short notice period before quitting, etc. In general, you can assume that these states will require you to pay out PTO in most cases:

Other states will allow you to have a policy that forfeits PTO when their employment ends. If there’s no policy in place and your employee hasn’t signed and agreed to it, then you will have to pay out their accrued PTO. In a lot of these states, use-it-or-lose-it may be legal:

As for the rest of the states, you would not be required to pay out PTO because they don’t consider it wages. When in doubt, rely on your practice’s policies.

Now, a couple of these states’ laws are dependent on the number of employees you have, whether the employee was fired or if they quit, what kind of policies you have set up, or some other permutation of PTO policies you might have. These lines can get blurry, but we’re here to help.

HR for Health Can Help

Compliance with final pay and PTO payout laws is decidedly un-fun. You’ve done the hard work of documenting a need for termination (or you’ve dealt with the fallout from a two weeks’ notice), and you’ve had the awkward conversations. You’ve figured out how you’re going to move forward with the rest of your team, whether you want to hire someone, what this is going to do to your budget… and now the state is watching you like a hawk? We know it’s rough, but we’ve been through it all, and the HR for Health team can help you through it. 

We’ll help you create better policies, put them all in an ironclad employee handbook, track your team’s hours and schedule, keep the payroll on point, and yep, we can help you with terminations, too. When the laws change (that’s when, not if) you’ll be the first to know.

Ask our team about what your state, your team, and your practice needs for compliance. Better yet, get a demo to see for yourself.