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Transcript of Termination Pay - nibmimages.com · Termination Pay: When to Pay It, How to Pay It, and How to Tax...
Termination Pay: When to Pay It, How to Pay It, and How to Tax It
Mindy Harada Mayo
Ryan, LLC
• Employment Tax Issues ▫ Termination Pay-When you have to pay
▫ Ramification to UI Funds
▫ WARN Act
▫ Severance Payments
▫ SUB Plans
Termination Pay
• Each state has separate laws and regulations on the governance of termination pay to employees. ▫ Determine when an employee must be paid
▫ Penalties may be assessed for noncompliance
▫ Each state has different rules Consult with a Labor Attorney
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Alabama No provision No provision No provision
Alaska By the next regularly
scheduled payday that is
at least 3 days after
employee’s notice of
resignation is provided.
Within 3 working days.
If termination is a temporary
layoff or lockout during a
pay period, the portion of
compensation earned must
be paid by the next regularly
scheduled payday.
The lesser of the employee’s
regular wages from time of
demand until time of payment
or 90 days’ wages as a civil
penalty.
$1000 fine and/or up to 1
year in jail for each violation
as a criminal penalty.
Arizona By the next regular payday
or by mail if the employee
requests
The earlier of 3 working
days or by the end of the
next regularly scheduled pay
period.
Triple the amount of the
unpaid wages.
Arkansas No provision Within 7 days of termination Up to 60 days of continuation
of wages.
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
California Within 72 hours.
Immediately if a 72 hour
notice of resignation is
provided.
Strikers and movie
employees, on next
regularly scheduled
payday.
Immediately.
Within 72 hours for seasonal
employees.
Within 24 hours for oil drilling
employees.
Within 24 hours for laid off
groups of motion picture
employees.
By the next regularly
scheduled payday for other
terminated movie employees
Up to 30 days of continuation of
wages for willful violation.
A civil penalty, $50 for each
initial failure to pay wages;
$100 plus 25% of the amount
unpaid for each subsequent
violation or if violation is willful.
Colorado By the next regularly
scheduled payday
Immediately or within 6 hours
of the Payroll Department
becoming operational.
By mail on request.
Next day if payroll is
processed offsite.
The greater of 10 days’
average daily wages or 50%
of wages due for failure to pay
within 60 days of termination.
A civil penalty of $50 per day.
A criminal penalty up to $300
and/or up to 30 days
imprisonment.
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Connecticut By the next regularly
scheduled payday.
The next business day.
The next regularly
scheduled payday if the
employee is suspended
during a labor dispute or laid
off.
A civil penalty of double the wages
owed.
A criminal penalty of $200 to $5,000
and/or 3 months to 5 years of
imprisonment.
Delaware By the next regularly
scheduled payday.
By mail if requested.
By the next regularly
scheduled payday.
By mail if requested.
Liquidated damages of 10% of the
unpaid wages per day plus a civil
penalty of $500 to $5,000.
District of
Columbia
The earlier of the next
regularly scheduled
payday or 7 days.
4 days if the employee
is responsible for the
employer’s money.
The next working day.
Within 4 days if responsible
for employer’s money.
The next regularly
scheduled payday if
suspended due to a labor
dispute.
Liquidated damages of 10% of unpaid
wages per day.
A criminal penalty up to $300 and/or
up to 30 days imprisonment for a first
violation, up to $1,000 and/or up to 90
days imprisonment for later violations.
Florida No provision No provision No provision
Georgia No provision No provision No provision
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Hawaii By the next regularly
scheduled payday.
By mail on request.
Immediately if one pay
period’s notice of
resignation is
provided.
Immediately.
By the next working day if
immediately is impossible.
By the next regularly
scheduled payday if
suspended due to a labor
dispute or temporarily laid
off.
By mail on request.
Penalty equal to the amount of
wages due plus 6% interest per year.
A criminal penalty of $100 to $10,000
and/or up to 1 year imprisonment.
Idaho The earlier of 10 days
or the next regularly
scheduled payday
(excluding weekends
and holidays).
Within 48 hours of the
employee’s written
request for payment.
The earlier of 10 days or the
next regularly scheduled
payday (excluding
weekends and holidays).
Within 48 hours of the
employee’s written request
for payment.
Up to 15 days of continuation of
wages with a $750 maximum penalty.
State Voluntary
Termination
Involuntary Termination Associated Penalties
Illinois Immediately if possible; if
not, by next regularly
scheduled payday.
By mail if requested
in writing.
Immediately if possible; if not, or
if suspended due to a labor
dispute or temporarily laid off, by
next regularly scheduled payday.
By mail if requested in writing.
Penalty of 1% of the wages
due per day, up to twice the
amount of unpaid wages if
failure to obey an order to pay
wages within 15 days.
Indiana By the next regularly
scheduled payday.
By the next regularly scheduled
payday.
10% of the wages due per day,
up to twice the amount of
unpaid wages as liquidated
damages.
Iowa By the next regularly
scheduled payday.
Commission payments
within 30 days.
By the next regularly scheduled
payday.
Commission payments within 30
days.
Penalty of 1% of wages due
per day, up to twice the
amount of unpaid wages if
failure to obey an order to pay
wages within 15 days.
Kansas By the next regularly
scheduled payday.
By mail if requested.
By the next regularly scheduled
payday.
By mail if requested.
The lesser of a 1% penalty of
the unpaid wages beginning
on the 8th day after payday, or
100% of unpaid wages.
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Kentucky The later of the next
regularly scheduled
payday or 14 days after
termination.
The later of the next regularly
scheduled payday or 14 days
after termination.
$100 to $1,000 fine per
violation.
Louisiana The earlier of the next
regularly scheduled
payday or 15 days after
notice of resignation.
The earlier of the next
regularly scheduled payday or
15 days after termination
date.
The lesser of up to 90 days of
continuation of wages or full
wages from time of demand.
Maine The earlier of the next
regularly scheduled
payday or 14 days after
demand for payment.
The earlier of the next
regularly scheduled payday or
14 days after demand for
payment.
$100 to $500 fine per violation.
Maryland By the next regularly
scheduled payday.
By the next regularly
scheduled payday.
Up to $1,000 as a criminal
penalty.
Massachusetts By the next regularly
scheduled payday. If
there is none, by the
following Saturday.
Immediately Up to $25,000 and/or up to 1
year imprisonment for a first
violation, up to $50,000 and/or
up to 2 years imprisonment for
later willful violations as a
criminal penalty.
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Michigan As soon as amount due
can be determined with
due diligence, but no
later than 3 days after
termination for hand
harvesters who resign.
As soon as amount
due can be
determined with
due diligence.
Up to $1,000 and/or up to 1 year
imprisonment if intentional.
A civil penalty up to $1,000, or
all wages owed plus 10%
per year until paid, plus
fees and costs.
Minnesota By the next regularly
scheduled payday.
If payday is less than 5
days after the last
workday, then wages are
due by the second
regularly scheduled
payday but no later than
20 calendar days after
the last day of work.
Immediately, or
within 24 hours of
demand.
A penalty of up to 15 days,
beyond a 10 day limit, of the
employee’s average daily
earnings if not paid within 10
days of the Labor
Commissioner’s
Demand.
Mississippi No provision No provision No provision
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Missouri No provision On the day of termination.
Within 7 days if the
employee requests by
mail.
Up to 60 days of continuation
of wages.
Montana The earlier of the next
regularly scheduled
payday or 15 days from
the date of resignation.
Immediately, unless the
employer’s written policy
extends the period of time
to the next regularly
scheduled payday or 15
days from the date of
termination whichever is
earlier.
Up to 110% of the unpaid
wages.
Nebraska No provision The earlier of the next
regularly scheduled
payday or 2 weeks.
A penalty equal to the amount
of unpaid wages If not paid
within 30 days of next regular
payday, and attorneys’ fees up
to 25% of unpaid wages.
Nevada The earlier of the next
regularly scheduled
payday or 7 days.
Immediately. Up to 30 days of continuation
of wages; an administrative
penalty of up to $5,000 per
violation.
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
New Hampshire By the next regularly
scheduled payday.
By mail if the employee
requests or within 72 hours
if one pay period’s notice
of resignation is provided.
Within 72 hours.
By the next regularly
scheduled payday if the
employee is suspended
due to a labor dispute or
is temporarily laid off.
10% of the unpaid wages up
to the amount of unpaid wages
as liquidated damages.
New Jersey By the next regularly
scheduled payday.
By mail if the employee
requests.
By the next regularly
scheduled payday.
By mail if the employee
requests.
A fine of $100 to $1,000 per
day as a disorderly persons
offense if the violation is willful.
New Mexico By the next regularly
scheduled payday.
Within 5 days.
Within 10 days for
commission, piece work
or task wages.
By the next regularly
scheduled payday if the
employee is suspended
due to a labor dispute.
Up to 60 days of continuation
of wages.
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
New York By the next regularly
scheduled payday.
By mail if the employee
requests.
By the next regularly
scheduled payday.
By mail if the employee
requests.
$500 to $20,000 and/or up to 1
year imprisonment for a first
violation as a criminal penalty.
A civil penalty up to $500 for
each failure to pay wages due.
North Carolina By the next regularly
scheduled payday.
By mail if the employee
requests.
By the next regularly
scheduled payday.
By mail if the employee
requests.
Up to the amount of unpaid
wages under court ordered
damages.
North Dakota By the next regularly
scheduled payday.
By the next regularly
scheduled payday.
Up to 30 days of continuation
of wages plus 6% interest per
year until paid.
If the employer was liable for 2
wage claims in the past year,
the fine is double the amount
of unpaid wages and triple the
amount if 3 or more previous
claims exist.
Ohio By the next regularly
scheduled payday.
By the next regularly
scheduled payday.
No provision
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Oklahoma By the next regularly
scheduled payday.
By certified mail if the
employee requests.
By the next regularly
scheduled payday.
By certified mail if the
employee requests.
The lesser of 2% of the wages
due or the amount of unpaid
wages as liquidated damages.
A misdemeanor conviction of a
$500 administrative fine if a
second violation occurs in a 6
month period.
Oregon The earlier of the next
regularly scheduled payday
or 5 business days.
Immediately if the employee
provides a 48 hour notice of
resignation.
By the end of the 1st
business day after
termination.
Continuation of wages at the
same rate for 8 hours per day
until paid or action is
commenced.
A penalty limited to 100% of
unpaid wages only if the
employee does not notify the
employer of unpaid wages.
There is no limit if the employer
receives written notice and does
not pay the full amount within 12
days.
The Labor Department may
assess a civil penalty up to
$1,000.
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Pennsylvania By the next regularly
scheduled payday.
By certified mail if the
employee requests.
By the next regularly
scheduled payday
By certified mail if the
employee requests.
Liquidated damages for
wages 30 days past due.
The greater of 25% of the unpaid
wages or $500.
A criminal penalty up to $300 and/or
up to 90 days imprisonment.
Puerto Rico No provision By the next regularly
scheduled payday.
If the employee is terminated without
cause, 1 to 3 months of wages plus 1
week’s wages for each year of service.
Rhode Island By the next regularly
scheduled payday.
By the next regularly
scheduled payday.
Within 24 hours if the
employer moves, merges
or shuts down.
$400 and/or 10 to 90 days
imprisonment per violation as a
criminal penalty.
South
Carolina
Within 48 hours of
separation or by the
next regularly
scheduled payday, but
not more than 30 days.
Within 48 hours of
termination or by the next
regularly scheduled
payday , but not more
than 30 days.
Triple the amount of the unpaid
wages, plus fees and costs.
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
South Dakota By the next regularly
scheduled payday or as
soon as all employer
property is returned.
By the next regularly
scheduled payday or as
soon as all employer
property is returned.
If intentional, a misdemeanor
conviction with a penalty
double the amount of wages
owed if fraud or malice
occurs.
Tennessee The later of the next
regularly scheduled
payday or 21 days after
separation.
The later of the next
regularly scheduled payday
or 21 days after termination.
$100 to $500 fine.
A civil penalty of $500 to
$1,000 if violation is willful.
Texas By the next regularly
scheduled payday.
Within 6 days. $1,000 or the amount of
wages owed.
Utah By the next regularly
scheduled payday.
Within 24 hours. 5% of the unpaid wages per
day up to 20 days.
Vermont By the next regularly
scheduled payday. If there
is none, by the following
Friday.
Within 72 hours. $500 and/or up to 1 year
imprisonment as a criminal
penalty.
Virginia By the next regularly
scheduled payday.
By the next regularly
scheduled payday.
Up to $1,000 fine for a
knowing violation.
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Washington By the end of the pay
period (the next regularly
scheduled payday).
By the end of the pay period
(the next regularly
scheduled payday).
All wages owed plus interest
1% per month.
If violation is willful, a civil
penalty of the greater of at
least $500 or 10% of the total
amount of unpaid wages, up
to a maximum of $20,000.
A misdemeanor conviction
may also apply with up to 90
days in a county jail and/or
up to a $1,000 fine.
West Virginia By the next regularly
scheduled payday.
Immediately if on pay
period’s notice of
resignation is provided.
Within 72 hours.
By the next regularly
scheduled payday if
suspended due to a labor
dispute or the employee is
temporarily laid off.
All wages due plus triple that
amount as liquidated
damages.
Attorneys’ fees and costs in a
civil action.
Wisconsin By the next regularly
scheduled payday.
By the next regularly
scheduled payday.
Within 24 hours if the
employer moves or closes.
Up to $500 and/or up to 90
days imprisonment
State Voluntary
Termination
Involuntary
Termination
Associated Penalties
Wyoming Within 5 working days. Within 5 working days.
By the next regularly
scheduled payday if
suspended due to a labor
dispute or the employee is
temporarily laid off.
A misdemeanor conviction
with a $500 to $750 fine if
failure to properly pay the
terminated employee was
willful.
There are approximately 21 states that have the same regulations regarding
termination pay regardless of the type of termination – voluntary or involuntary.
For involuntary terminations, 8 states require final pay to be paid immediately.
There are 4 states that have no provisions on termination pay regardless of type of
termination, nor do they any penalty provisions.
Ramifications on UI Funds
• At least 23 states have depleted their UI reserves ▫ Results in future increased rates
▫ Potential surcharges, bond measures
Increase Annual FUTA Tax per Employee over normal
State 2012 2013 2014 Arizona $63 $84 $105 150% Arkansas $84 $105 $126 200% California $84 $105 $126 200% Colorado $63 $84 $105 150% Connecticut $84 $105 $126 200% Delaware $63 $84 $105 150% Florida $84 $105 $126 200% Georgia $84 $105 $126 200% Illinois $84 $105 $126 200% Indiana $105 $126 $147 250% Kentucky $84 $105 $126 200% Missouri $84 $105 $126 200% Source: U.S. Dept. of Labor, Employment and Training Administration, UI Program Statistics
Increase Annual FUTA Tax per Employee over normal
State 2012 2013 2014 Nevada $84 $105 $126 200% New Jersey $84 $105 $126 200% New York $84 $105 $126 200% North Carolina $84 $105 $126 200% Ohio $84 $105 $126 200% Pennsylvania $84 $105 $126 200% Rhode Island $84 $105 $126 200% South Carolina $105 $126 $147 250% Vermont $63 $84 $105 150% Virgin Islands $84 $105 $126 200% Wisconsin $84 $105 $126 200% Source: U.S. Dept. of Labor, Employment and Training Administration, UI Program Statistics
Payments made at termination
• Health Insurance ▫ Premiums paid by employers after layoff or termination not
taxable to employee assuming accountable plan requirements are met
• Outplacement Assistance ▫ Not a taxable event if provided as part of an outplacement
plan to affected employees
• Severance ▫ Fully taxable for all payroll taxes
May affect unemployment benefits
Employment Tax Issues
Facts to address when undergoing workforce transition:
• WARN Act-how much notice must be given to worker
• Many states prohibit state unemployment benefits while severance payments are made
• Wage continuation vs. lump sum benefits can make a difference
For example: Ohio prohibits an overlap of severance and state unemployment benefit when employer properly reports payments
Employment Tax Issues
Facts to address when undergoing workforce transition:
• WARN Act- ▫ An employer must give notice if an employment site will be permanently or temporarily
shut down, resulting in an employment loss for 50 or more employees during a 30 day period.
▫ Employers are covered by WARN if they have 100 or more employees, not counting employees who have worked less than 6 months out of last 12 or work an average of less than 20 hours per week.
▫ If there is a mass layoff of 500 or more employees or for 50 to 499 employees if they make up at least 33 percent of the employer’s active workforce.
▫ Written 60 day notice must be given.
Employment Tax Issues
Severance Payments
• Excluded from definition of wages depending upon employment agreement and buyout provisions
• Ability to avoid FICA, FUTA, and SUTA taxation as well as withholding for the employee
Form W-2
With regard to providing Form W-2, if an employee terminates
employment prior to the end of the year, there are two possibilities:
1. The employer can wait until January 31 of the following year to
send Form W-2 to the terminated employee, or
2. If the employee requests, in writing, for a Form W-2 before the
end of the year, the employer must provide the Form to the
terminated employee within 30 days of the written request.
Employment Tax Issues
Can severance payments be an event not subject to payroll taxes?
Buyouts
SUB Plans
Employment Tax Issues
Supplemental Unemployment Benefit Plan
• Alternative to Severance pay
• Close the gap between state unemployment benefits and the employee’s normal wage
• Not considered “wages” for FICA and FUTA
• Reduces Employer and Employee payroll taxes
Employment Tax Issues
• Quality Stores ▫ In a long-awaited decision, the U.S. Court of Appeals
for the Sixth Circuit held in United States v. Quality Stores, Inc., September 7, 2012, that certain dismissal payments were Supplemental Unemployment Compensation Benefits (SUB) exempt from FICA taxes.
Employment Tax Issues
• Protective Claims ▫ The due date for the protective claim is three years
from April 15 of the calendar following the year in which the severance payments were made. For example, for FICA taxes paid in 2009, a protective claim should be filed by April 15, 2013.
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Termination Pay: When to Pay It, How to Pay It, and How to Tax It
Mindy Harada Mayo
Ryan, LLC