When an employee leaves a job, whether voluntarily or involuntarily, employers must properly handle the employee’s final pay. Unlike some states, New York does not require employers to hand a departing employee a final paycheck immediately. But employers cannot simply hold earned wages until all outstanding issues with the employee have been resolved.
Questions can also arise over unused vacation time, commissions, bonuses, deductions, and required termination notices. Importantly, not every form of compensation or benefit is necessarily subject to the same rules.
Here are some of the key New York final paycheck requirements employers should know.
When Is a Final Paycheck Due in New York?
New York Labor Law § 191 provides that when employment ends, wages must be paid no later than the regular payday for the pay period during which the termination occurred. In other words, New York generally does not require an employer to accelerate its normal payroll schedule when employment ends. An employee discharged on Monday ordinarily does not need to receive a final paycheck that same day or perhaps even that same week.
Employers should resist the temptation, however, to delay payment because some other issue remains unresolved with the departing employee.
Can an Employer Hold a Final Paycheck Until the Employee Returns Company Property?
Suppose an employee leaves without returning a company laptop, cell phone, keys, tools, or other property. Can the employer simply hold the employee’s final paycheck until the employee returns everything?
Generally, no.
New York Labor Law requires timely wage payment and strictly limits deductions. An employer usually cannot withhold earned wages as leverage to compel an employee to return company property.
The same concern arises if an employer wants to deduct the value of missing or damaged property directly from the final paycheck. New York’s wage deduction rules do not give employers a general right to deduct amounts they believe an employee owes the company. Employers may have other legal remedies to recover company property or money owed by a former employee. But withholding or reducing earned wages is seldom the appropriate way to pursue those remedies in New York.
Related: New York’s Trapped At Work Act
What Can an Employer Deduct From a Final Paycheck?
The usual lawful payroll deductions can continue to be made from a final paycheck. These include required tax withholdings and other deductions New York law permits, such as health insurance premiums. However, employers should be especially careful about making additional deductions because the employment relationship is ending.
New York does have specific procedures that may permit employers to recover certain wage overpayments resulting from mathematical or clerical errors and certain wage advances. Those procedures are subject to detailed requirements and do not create a general right to offset amounts an employee owes against the employee’s final wages.
The practical rule is simple: a final paycheck is not an opportunity to settle accounts between the employer and employee.
Must Employers Pay Out Unused Vacation, PTO, or Sick Leave?
New York does not generally require private employers to provide paid vacation. Yet, when an employer does provide vacation or other paid time off, its written policies should address what happens to unused time when employment ends.
Employers in New York can establish whether to pay unused PTO upon termination and the conditions that apply. For example, a policy may address the effect of an employee resigning without providing required advance notice. It could distinguish that scenario from a performance-based termination or other circumstances.
The burden is on the employer to set such conditions in advance. The New York State Department of Labor takes the position that if an employee has earned vacation time and there is no written policy providing for forfeiture, the employer must pay for the accrued vacation when employment ends.
New York’s paid sick leave law presents a related issue. Although covered employers must provide employees with sick leave, the statute itself does not require employers to pay employees for unused statutory sick leave when employment ends. An employer’s own policy or another agreement, however, could provide greater rights. Employers should therefore expressly address the treatment of unused sick leave upon separation.
Employers should make sure their vacation, PTO, and sick leave policies clearly address what happens to unused time upon resignation and discharge. Waiting until an employee leaves to determine how to handle an accumulated leave balance can lead to unnecessary disputes.
What About Commissions?
Commissions can complicate final compensation. What happens if the product or service sold hasn’t been provided or paid for yet?
New York requires written agreements for certain commissioned salespersons. Among other things, the agreement must explain how wages, salary, draws, commissions, and other amounts will be calculated when the employment relationship ends. Depending on the compensation arrangement, a commission may already have been earned when employment ends, or the right to a commission may depend on events that occur later.
Employers should therefore review the applicable commission agreement before determining what remains payable to a departing salesperson. Do not assume that ending the employment relationship automatically eliminates commissions for transactions or work performed before termination.
Are Bonuses Due After Employment Ends?
No single rule governs every bonus when an employee leaves. Whether a bonus remains payable can depend on the nature of the bonus, the applicable bonus plan or agreement, whether the employee has already satisfied the conditions for earning it, and other circumstances. Clear written bonus plans can reduce disputes by explaining eligibility requirements, how to calculate bonuses, when they become payable, and what happens when employment ends.
In each situation, review the specific bonus arrangement rather than assuming all bonuses are payable or that the employee automatically forfeits all unpaid bonuses upon termination.
Is Severance Pay Required?
New York law does not generally require employers to provide severance pay simply because employment ends.
An employer may nevertheless have severance obligations under an employment agreement, collective bargaining agreement, severance plan, established policy, or other commitment. Employers may also voluntarily offer severance in exchange for a release of claims or for other business reasons.
Where offered, severance should be distinguished from wages the employee has already earned. An employer should not condition payment of earned wages on the employee signing a severance agreement or release.
The legal treatment of promised severance or other benefits depends on the particular plan or agreement involved. Employers facing a dispute over unpaid severance should evaluate the particular circumstances rather than assuming the rules governing ordinary wages necessarily resolve the issue.
A Final Paycheck Checklist for New York Employers
When an employee leaves, New York employers should consider the following before closing out payroll:
- Identify all wages earned through the employee’s last day of work.
- Pay final wages by the applicable regular payday.
- Determine how company policy treats unused paid leave.
- Review any outstanding commissions or bonuses and the agreements governing them.
- Confirm that any deductions from final wages are lawful.
- Do not withhold earned wages just because the employee has not returned company property.
- Distinguish severance or other benefits from wages already earned.
Most final paycheck issues are straightforward when employers have clear compensation and paid-leave policies. Problems tend to arise when employers try to resolve unrelated disputes through payroll or when policies do not clearly address what happens to compensation and benefits when employment ends.
Employers can avoid many of these problems by addressing final compensation in their policies and agreements and by taking a closer look when the departing employee has commissions, bonuses, severance, or other compensation that does not fit neatly into an ordinary final paycheck.
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