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Unfortunately, Employee Termination is an inevitable reality of owning a business. It can be the result of behavior or work performance or it could simply be because services are no longer needed despite having done outstanding work during his or her tenure with your company. Either way, it is essential to make sure that all the details are properly attended to.
Before the final decision is made, make sure that your decision is a legally sound one.
For example, you are not allowed to terminate an employee because of his age, disability, gender, race or religion or because she took family, medical or military leave or went to serve on a jury or vote. Whistle-blowers are also protected from being fired because of those actions.
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Employee Termination Checklist:
1. Final Paycheck
Once an employee’s relationship with the company has been terminated, an immediate concern is the timing of the final paycheck.
The required timelines may differ substantially depending on the state regulations and the circumstances surrounding departure.
While a number of states require that the final paycheck be issued “immediately;” note that this term is defined differently from state to state. Conversely, several states and the federal government have not passed laws relating to when final paychecks need to be paid, leaving this open to interpretation by the company and human resources department. However, all employees must be paid through their final date of service regardless of any other details that may influence the timing of the paycheck.
2. Severance Pay
There are no legal reasons on a federal level to issue severance pay other than if the employee and the company had signed an agreement stating that this would be issued in the case of termination.
However, some states do require it be paid in certain circumstances.
Otherwise, severance pay is sometimes agreed upon at the time of the termination in order to help prevent that employee from working for a competing company or to have him waive any rights for future legal claims or access to unemployment compensation.
3. Unemployment Compensation
Barring a legally binding agreement stating otherwise, unemployment may be required to be paid if the employee was terminated through no fault of their own, as per Department of Labor regulations and in accordance with state law.
4. Unused Vacation and Sick Days
In about half of the states, unused vacation time needs to be included in the employee’s final paycheck. However, unused sick days do not need to be paid to a departing employee. If an employee is terminated in a state that does not have a policy regulating payment of vacation days, then the company’s general policy or any agreements with staff take precedent.
If your company consists of more than 20 employees and the terminated employee was part of a health insurance program and was not let go for “gross misconduct,” he will likely be eligible for continued coverage through COBRA or a state program that provides similar benefits. If your company is smaller than that, your state may still require health coverage be continued for a set period of time following his departure from the company.
Typically, terminated or departing employees have up to 60 days to elect COBRA benefits and then an additional 45 days after the election to make the first premium payment due.
6. Vested Retirement Plans
Vested profit-sharing, pension or 401(k) benefits need to also be addressed when an employee’s time with the company has come to an end. If she has contributed money into one or more of these plans, she has the right to receive those benefits, regardless of the reasons behind her termination.
As often happens with 401(k) benefits, the value of those funds could decrease in value. However, defined benefit plans ensure that the employee’s retirement funds are protected.
7. Reclaim Company Property
Make sure that all company-issued property is returned. These items can include things like cell phones, keys and laptops. If possible, it is best to have already planned out how this will be done prior to letting the employee know that her time with the company has been terminated.
Make sure to do your due diligence and research the laws in your state as they relate to terminating a relationship with an employee as breaking these or related federal laws can result in serious consequences such as lawsuits and significant penalties.
Here’s a visual checklist so you know what steps you have done and which you still need to do: