The Importance of Timely Terminations

So often, our blogs focus on strategies for sourcing, hiring and compliance issues surrounding workforce management. However, there are important things to consider when an employee is terminated, either by choice or by HR. Let’s examine some of the compliance issues companies must respect—specifically, the timeliness of administering termination pay, unemployment compensation, healthcare and other benefit extensions.

Termination Pay: Laws regarding termination pay vary widely from state to state, each dictating their own requirements around the issuance of an employee’s last paycheck. One of the more common requirements governs the period within which the employer must deliver a terminated employee’s final paycheck. Alabama, Florida, Georgia, Mississippi, and Ohio are the only states without any laws dictating how quickly an employer must pay employees their final wages upon termination.

California, where employment laws are stricter, enforces a penalty on employers who do not deliver an employee’s final pay in a timely manner. In The Golden State, employers are required to pay an employee on their last day if notice of the intent to quit was given, or within 72 hours if no notice was given. Penalties are calculated by multiplying the daily wage by the number of days that employee was not paid, up to a maximum of 30 days. This does not mean that the wages continue for a 30-day period, but that the employee may be entitled to up to 30 actual days’ worth of wages if they are not paid.

Unemployment Compensation: A number of factors will determine how an unemployment insurance (UI) claim will impact an employer, all of which are important to understand. Every UI claim has the potential to affect an employer’s bottom line—an important detail to remember for any company interested in controlling labor costs.

When terminations are not reported in a timely manner, the employee can file for unemployment and there is a VERY small window (usually about 7–10 days) for the terminating company to respond. If the company does not know the employee has been terminated and fails to respond to the notice, the employee may be deemed eligible to receive unemployment when in fact, they could have been terminated for cause making them ineligible for benefits. When a company is suspected of not responding in a timely manner, reporting incorrect data, or having files that are out of date, they can be flagged for audit.

Health Benefits: An individual covered under a group health plan the day before a qualifying event occurs would be qualified as a beneficiary. A qualifying event is a specific event resulting in the loss of plan group coverage. There are several types of qualifying events for employees, their spouses and dependent children.

• For an employee a qualifying event may include, voluntary or involuntary termination of employment for any reason other than “gross misconduct,” and reduction in employment hours which would result in the loss of coverage.
• For a covered employee’s spouse, qualifying events include: death of the employee; termination of the employee’s employment; reduction in employee’s employment hours; divorce or legal separation; employee becomes eligible to receive Medicare benefits.
• For an employee’s dependent children, qualifying events include: those as listed above for spouses plus an instance wherein the child loses eligibility due to reaching the maximum dependent or student age, or graduation from college.

Group health plans must give each employee (and each spouse of an employee who becomes covered under the plan) a general notice describing COBRA rights. The general notice must be provided within 90 days from the date the covered employee or spouse first becomes covered under the plan. Or, if later, the date on which the plan first becomes subject to the continuation coverage requirements. Or the date on which the administrator is required to furnish an election notice to the employee or to his or her spouse or dependent. The election notice must be provided to the qualified beneficiaries within 14 days after the plan administrator receives notice that a qualifying event has occurred. Failing to adhere to these requirements increases the risk of fines and penalties via litigation.

If your workforce management program does not maintain a standard, written set of policies governing terminations, turn to experts like nextSource to help develop and implement such plans before issues arise.