Termination of employment whether an employee quits, retires, dies, or is fired can often be a complicated process, and not the least complicated aspect of an employee leaving employment is the calculation and processing of his or her final wage payment.

To begin with, there are a variety of kinds of compensation that may need to be considered when calculating an employees final pay, including (but by no means limited to) regular pay, accrued vacation and other leave, severance, golden parachute awards, nonqualified deferred compensation, stock options, and back pay awards. The timing of a final wage payment is often dictated by state law and (a particular concern for multistate employers) can vary from state to state. There can also be special taxation and reporting rules for the various kinds of payments made and for the various jurisdictions involved. In addition, there are special considerations that apply when termination of employment is due to the employees death. Complicating the payroll process, because some states require immediate or next-day payment of final wages in certain circumstances, checks may need to be issued outside the regular payroll cycle, which can be particularly problematic for large multistate employers with centralized payroll systems. Terminations may also raise unique problems during year-end processing of employee Forms W-2.

Payment on termination can be further complicated if the employee was subject to a wage garnishment, participated in the employers flexible spending account, was advanced wages or lent money by the employer, or was subject to any number of other special situations.

To help employers navigate the sometimes complicated process of paying terminated employees, this issue of Workforce Strategies provides some practical advice about what employers should consider when calculating, paying, and reporting final wage payments and how to organize the process for maximum efficiency.