If you are a California-based business that employs staff, then you probably know that you need to be aware of the laws and regulations that govern the termination of employees, including the payment of their final wages.
Keeping up to date on this knowledge ensures that you are not treating your ex-staff unfairly or exposing yourself and your business to potential lawsuits.
This guide will help you understand your obligations and responsibilities as an employer and provide you with some tips and best practices for handling employee terminations and severance packages.
Along with most other states, California is an “at-will” employment state. What this means is that either the employer or the employee can end the employment relationship at any time, for any reason, or for no reason whatsoever.
However, there are a few exceptions to this rule, including:
Since California is an “at-will” state you do not have to provide notice to an employee before terminating them. The only time this is a requirement is if there is a contract or agreement that states given notice as a requirement.
What types of notice are required?
Although no notice needs to be given under normal circumstances of employment terminations, there are certain situations where you do have to provide notice to the state or to the affected employees:
If there is a dispute over the termination requirements or the validity of your reason for the termination, you may potentially face legal action from the employee, union representative, or from a government agency.
We always recommend consulting with an attorney before terminating an employee, especially if the situation is complex or not clear-cut.
One very effective way to avoid potential disputes and lawsuits over employee terminations is to establish a clear policy over what is a terminable offense. Additionally, you must also have clear procedures for terminating employees.
These policies should include:
These policies should be freely available to all employees when they are onboarded and available in the company handbook. You should also provide training and awareness on them at regular intervals.
Managers and supervisors should also know exactly how to apply these policies and procedures fairly and consistently.
You must document every step of the termination process and keep accurate records of all employee communications. If there is a clear paper trail showing – and proving – your actions throughout, you will have a much easier time if a dispute is raised.
You are not obliged to provide transition assistance, though it is often seen as a gesture of goodwill to do so, especially if the employee is being terminated through no fault of their own.
Transitional assistance varies, and you can choose to do one or more of the following:
Severance is a payment or a package of benefits that you can offer an employee who is terminated.
A severance package can consist of:
Severance is not required by law in California unless there is a contract or agreement that specifies it. However, many employers choose to offer severance as a gesture of goodwill or to “soften the blow” and avoid potential litigation.
The amount and terms of severance are usually determined by factors such as:
There is no obligation for an employer in California to provide severance packages to terminated employees. Doing so is entirely at your discretion and the circumstances surrounding the termination.
For example, if you have a highly respected, long-standing employee who is being terminated due to downsizing, offering a severance package would be the right thing to do.
On the other hand, if you have a lazy employee who is being terminated due to on-the-job negligence, then it’s highly unlikely you would want to offer them anything.
There is no fixed formula for calculating severance pay in California, but a broadly accepted rule of thumb is to offer one week’s pay for every year of service. However, you are welcome to create a severance package that works for your business and the terminated employee.
If you’re unsure what to offer, a third-party financial service provider such as Finvisor can provide you with the expertise to help you.
It’s not just the employee that gets to negotiate. While you want to make it fair for them, you must also ensure that the outcome works for your business too. Here’s what you can do to get the right outcome:
Again, clear communication is vital when negotiating and handling severance packages. And don’t forget to leave that all-important paper trail!
Additionally, you must:
No one wants to hear that their valued and well-liked work colleague has been let go. Furthermore, hearing this kind of news quickly demotivates staff and reduces morale.
Therefore, delivering the news must be handled carefully and sensitively. You have to balance the privacy and dignity of the terminated employee with the need to inform and reassure the remaining employees.
Here are some tips to follow:
One of the most important aspects of terminating an employee is paying their final check after termination properly and correctly.
While California’s final paycheck laws surrounding termination are fairly loose, it does not mess around in this area. The state has strict laws on final paycheck, and you have to comply with them to avoid penalties and lawsuits.
The terminated employee final paycheck should include the following:
The last paycheck after termination should be:
Failure to pay the final paycheck after termination on time and in full makes you liable for waiting time penalties, which are equal to one day’s wages for each day of delay, up to a maximum of 30 days.
You may also face legal action from the employee or from the Labor Commissioner’s Office.
To avoid these consequences, you should:
If a terminated employee received a monthly salary, then the calculation is straightforward. Work out the day rate of their salary (annual amount / no of working days in the year) and multiply that by the number of days owed.
If the employee was on an hourly rate, this is even easier to work out. Just pay for the hours outstanding.
Crucially, do not forget to include any overtime pay, double-time pay, or anything else outside of their normal working salary or hourly pay in the terminated employee’s final pay.
When it comes to hiring and firing, Californian employers enjoy a lot of freedom and flexibility. However, it does not mean you can fire someone simply for the sake of it.
Make sure you’re up to date on all the rules and regulations surrounding Californian employment last check laws and be sure to treat your employees fairly when the time comes to let them go.
At Finvisor, we fully understand delicate situations and can help you tread carefully and properly. If you ever need an expert by your side to navigate employee terminations and final paycheck law successfully, just give us a call. Our seasoned HR and employment experts are on hand to assist you.
To learn more about what we do, or to request a quote, contact us at firstname.lastname@example.org or 415-416-6682. We’re here to help you navigate deferred revenue journal entries so you can make the most of your assets!
*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*