In general, an employee who is fired must be paid all unpaid wages that have been earned up to and including the date of termination. That payment must be made on the same day that the employee is terminated.
There are, however, limited exceptions to this rule, depending on the industry in which the worker is employed.
Employees who quit and give notice at least 72 hours before their last day of work must be paid their final wages on their last day, assuming it is the day stated in the notice.
Employees who quit without giving such notice must be paid their final wages within 72 hours after their last day of work.
California law regards a paid vacation as a form of wages. Paid vacations are compensation for labor the employee performs, but the payment is delayed until the employee takes the vacation.
Employers are not required to offer vacation pay to their employees, but they must follow certain rules if they do.
If an employment agreement includes paid vacations, an employee is entitled to be paid wages for unused vacation time that has vested at the time the employee’s work ends. The right to a paid vacation vests as the employee performs the work that entitles the employee to a paid vacation.
When employment is terminated, the employee is entitled to be paid for the portion of the employee’s unused paid vacation that the employee has earned.
An employment agreement gives the employee the right to take two weeks of paid vacation after one year of work. If the employee is terminated after six months of work, the employee has earned half of the paid vacation. The employee is entitled to one week of extra wages at the time of termination.
California employers are not allowed to circumvent the right to be paid the proportionate share of vacation pay that the employee has earned by conditioning entitlement to vacation on the completion of a fixed period of work.
So, even if an employment agreement states that the employee is not entitled to vacation pay until the employee has worked a full year, the employee must be paid for unused paid vacation in proportion to the time that the employee worked before employment ended.
The Waiting Time Penalty
California law provides for a “waiting time penalty” when employers willfully fail to pay final wages, in full and on time, after employment ends.
The penalty for late payment of wages advances the public policy of assuring that employees are paid promptly for their work. It incentivizes employers to pay wages in a timely manner.
Calculating the Penalty
The waiting time penalty consists of a full day of wages for each day that payment is delayed. The penalty continues to accrue for as much as 30 days after discharge, depending on when payment is fully satisfied.
The waiting time penalty is calculated by computing the employee’s daily wage rate and then multiplying it by the number of days that payment is delayed, up to a maximum of 30 days.
The daily wage rate is typically calculated by adding base wages, commissions, bonuses, and vacation pay that the employee earns in a year, dividing that sum by 52 weeks, and dividing that result by 40 hours.
When a Failure to Pay is “Willful”
A failure to pay wages on time is willful if the failure is intentional. An employer does not fail to pay wages willfully when there is a good faith dispute about the employee’s entitlement to the unpaid wages.
A good faith dispute exists when an employer presents a legitimate legal or factual defense to the payment of wages, even if the employer does not prevail.
Employer’s Insufficient Funds
The waiting time penalty applies if the employer intentionally pays final wages with a check that cannot be cashed or deposited because it is not supported by sufficient funds or because it is drawn on a bank where the employer no longer has an account.
When the paycheck bounces or is rejected in this way, a penalty of one day of additional wages for each day that the check is not satisfied continues for a maximum of 30 days.