Using Direct Deposit for a Final Paycheck

“Why can’t I use direct deposit for a final paycheck?”

Your HR Survival Tip

The simple answer is that you usually won’t be compliant with the law. Of course, there are exceptions, based on how your payroll is processed.

When you review the legal requirements, it becomes easier to understand what you need to do. The big thing to remember is, if you are late with a final paycheck, you must keep paying the employee until you can get that final check in their hands. The Labor Commissioner is happy to help the employee get the money that’s due plus the daily penalty. Here is the timing for each situation:

  • Employee is fired — You must provide a final paycheck that same day. On a side note, if you have the employee come to work just to be fired, you must make sure reporting time pay has been added to that check. Reporting time pay is half their scheduled time but no less than 2 hours and no more than 4 hours. If the employee normally works an 8-hour day, their reporting time pay must be 4 hours.

  • Employee has resigned — You must provide a final paycheck on the last day they are working if they provided more than 3 days’ notice. If you decide you’d rather they leave immediately, you have legally changed their resignation to a firing. This means you (a) owe them the final paycheck that day, and (b) have made them eligible for unemployment because they were fired.

  • Employee stormed off the job — If you weren’t given notice, you only have 72 hours to get that employee a final paycheck. That is 3 days but it’s calendar days, not business days. This is always a challenge when the employee walks off on a Friday. You need to get that check ready and sent that day for overnight delivery.

Most companies use an external payroll processor that needs 1-3 days for a direct deposit. This timing doesn’t work with the final paycheck timing so, if this is your situation, you need to plan for another way to provide that final paycheck. It’s easiest to learn how to create a manual check within your payroll system and how to print a copy of the pay stub (wage statement). Then, the next time you run payroll, the system processes it so all the income and taxes are recorded properly.

There is no reason to take a chance with direct deposit. It may seem easier to you but that will only last as long as it takes for the Labor Commissioner to notify you of a claim of late payment. Develop a process that’s simple and legal.

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