Business.gov - The Official Business Link to the U.S. Government
Severance Pay and Final Paycheck
Last Paycheck
Employers are not required by federal law to immediately give former employees their final paycheck. Some states, however, may require immediate payment, and have requirements on what should be included in the final paycheck, such as accrued, unused vacation days. Contact your State Labor Office for information on employer requirements in your state. Also, the U.S. Department of Labor provides a Last Paycheck guide that explains applicable laws and regulations.
Severance
Severance pay is often granted to employees upon termination of employment. It is usually based on length of employment for which an employee is eligible upon termination. There is no requirement in the Fair Labor Standards Act to provide severance pay. Severance pay is a matter of agreement between an employer and an employee (or the employee's representative). The U.S. Department of Labor provides the following resources on severance pay:
- "How is Severance Pay Calculated and When is it Due?"
Answers from the elaws FLSA Advisor. - Handy Reference Guide to the Fair Labor Standards Act
Answers many questions about the FLSA and gives information about certain occupations that are exempt from the Act.
If you decide to offer the employee a severance package, many employers then have the employee sign a release, an agreement not to sue you in exchange for receiving certain benefits. If the employee signing that release is an older worker, special rules apply. If the employee is 40 years of age or older, the Older Workers' Benefits Protection Act dictates what must be included in a release. Among other things, you must give these employees a longer period of time to review the release, allow them to revoke the agreement for a limited time after they sign, and advise them in writing to consult with an attorney.
