Dustin Paschal here with Simon Paschal PLLC for your video tip of the week. Today we’re going to talk about separation pay or the pay that an employer owes upon employment separation. So there’s no federal rule that governs that. But at least here in Texas, the Texas Payday Act governs the employee’s final pay upon separation. And they differentiate between that final pay based on whether the termination was voluntary or involuntary.
So for any involuntary termination, whether that’s firing them, laying them off, however you want to call it, the final paycheck is due to that employee within six calendar days of the termination date. If it’s a voluntary termination, meaning the employee resigns, then the final pay is due on the next regularly scheduled payday. So that’s the differentiation between when that pay is due.
Now there’s a couple of questions that come up on that. So people want to talk about if I pay out PTO or other fringe benefits, when is that due? The Texas Payday Act considers those kinds of things wages, so those are due at the exact same time. So again, if it’s involuntary within six calendar days, of the termination date. Voluntary, next regularly scheduled payday.
Another question that comes up a lot of times is employers say, “Well, they haven’t returned the equipment that they have, so can I hold their final paycheck until they do that?” And the answer is no. You’ve got to give them their final paycheck pursuant to the Texas Payday Act. Now the way to resolve that problem is in advance of the termination, so do it sometime during employment, probably when you’re onboarding employees, get a wage deduction agreement. And that wage deduction agreement can say, “If you fail to return company property upon employment separation, we’ll deduct that from your final paycheck.” That’s really the only way to resolve that. If you don’t have a wage deduction authorization and they don’t return your company equipment, you still got to give them their final paycheck, but you could pursue them civilly for some sort of theft action based on failure to return that equipment.
The other thing that I wanted to talk about, two pieces, is one is, well, what if they don’t give me their time sheets? I can’t calculate their pay. Again, you’ve got to calculate their pay as best you can and give them their final paycheck on the schedule required by the Texas Payday Act. The best way to resolve that, again, is with the wage deduction agreement saying that if the employee does not submit their final time sheets, that will affect their final pay. And we’ve talked about wage deduction agreements in some other places, and so you can find out the ins and outs of that.
The final piece is bonuses and commissions. A lot of people say, “Well, I can’t calculate their bonus or commission by those timelines in the Texas Payday Act.” That’s fine, assuming you have an agreement. Bonus and commission agreements are enforceable if they’re in writing or an oral agreement and those agreements control. So if the agreement says you get paid within 90 days of receipt of the payment to the company, you can pay that bonus or commission payment according to that schedule. That agreement controls over the Texas Payday Act.
So there’s just a few things for employers out there on how to handle final pay for employees. Stick with us. We’ll keep posting these video tips. Thanks!