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Create final paychecks for terminated employees

SOLVEDby QuickBooksIntuit Online Payroll558Updated 7 days ago

Learn when and how to create final paychecks in QuickBooks Payroll products.

Letting an employee go is challenging. When an employee no longer works for you, you need to give them their final paycheck to cover their remaining wages.

Here's how to create final employee paycheck in each payroll product. We'll also offer some guidance if you're not sure how to handle severance.

Step 1: Understand final paycheck guidelines

If you terminate an employee for any reason, including discharge, layoff, or resignation, you must pay them for all time owed on a final or termination paycheck.

  • Amount of pay: How much you pay depends on the agreement you have with your employees. You also need to follow state and federal tax laws.
  • Sick and vacation time: The Fair Labor Standards Act (FLSA) doesn't require payment for time not worked, such as vacation, sick leave, or federal or other holidays. However, your state might. 
  • Severance pay: Severance pay is a payment package offered to employees based on length of service and salary requirements. There are no requirements in the Fair Labor Standards Act (FLSA) for severance pay. However, your state might have regulations. 
  • Taxes: Final or severance paychecks are subject to regular taxes or supplemental rates if paid as bonuses.

Reach out to your state agency for more info about your state's legal and tax requirements.

Step 2: Create a final paycheck

Follow the steps to create your employee's final paycheck in the payroll product you use.

Note: Not sure which payroll service you have? Here's how to find your payroll service.

You have 2 ways to create a final paycheck in QuickBooks Online Payroll:

  • Make the final paycheck their last regular paycheck (also known as a scheduled payroll), or 
  • Provide the employee a paycheck outside the normal pay schedule (an unscheduled payroll).

Follow these steps for whichever type you want to create.

For Unscheduled Payroll

  1. Go to Payroll, then Employees.
  2. From the Run payroll ▼ dropdown, select one of the following: Bonus only, Commission only, or Fringe benefits if you already selected one of these as the pay type.
  3. Select As net pay if you know the exact amount you need to pay the employee. Otherwise, select As gross pay.
  4. Enter any additional info about taxes or paycheck calculations.
  5. Select the bank account you use in QuickBooks to track this type of payroll transaction. Also review the pay period and pay date.
  6. Select the employees you want to pay.
  7. Enter their hours, compensation, memos, or any other necessary paycheck info.
  8. Under Pay Method for each employee, select the link to choose a paper or direct deposit paycheck.
  9. Select Preview payroll.
  10. Select Preview payroll details to review the details. Then select Save for later or Submit payroll.
  11. When you're ready, select Finish Payroll.

To remove the employee from your active employee list so you don’t get billed for them anymore, update their employee status.

For Scheduled Payroll

  1. Go to Payroll, then Employees.
  2. Select Run Payroll. If you have a payroll schedule, select it and then select Continue.
  3. Select the bank account you use in QuickBooks to track this type of payroll transaction. Also review the pay period and pay date.
  4. Select the employee you want to pay.
  5. Enter their hours, compensation, memos, or any other necessary paycheck info.
  6. Under Pay Method for each employee, select the link to choose a paper or direct deposit paycheck.
  7. Select Preview payroll.
  8. Select Preview payroll details to review the details. Then select Save for later or Submit payroll.
  9. When you're ready, select Finish Payroll.

To remove the employee from your active employee list so you don’t get billed for them anymore, update their employee status.

In QuickBooks Desktop payroll, there's a specific termination paycheck type.

Important: If you need to create a second paycheck (to cover things like a separate check for severance pay), choose Scheduled Payroll or Unscheduled Payroll first. Create these types of paychecks before creating the termination paycheck.

  1. From the Employees menu, select Pay Employees and then Termination Check.
  2. Review the Pay Period Ends date, Check date, and the Bank Account the payment comes from. Important: To avoid a late fee, date the check for today or a future date.
  3. Put a checkmark next to the employees you need to give a termination paycheck to.

Next, create a termination check:

  1. Under the Release Date column, select the Calendar icon. Then select the employee's release date. Or enter the employee's release date.
  2. Enter and review the hours or salary.
  3. Select Open Paycheck Detail to review the paycheck details.
  4. If you want to send the check as a direct deposit, select and check the Use Direct Deposit checkbox. If you don't want the paycheck to be a direct deposit, select and uncheck the option.
  5. If you don't want vacation or sick time to accrue for this specific paycheck, select the Do Not Accrue Sick/Vac checkbox.
  6. When you're done, select Save & Next to create a check for another employee. Or select Save & Close to go back to the Enter Payroll Information window.

Important: If you're using direct deposit to pay the termination check, you must send payroll to Intuit by 5:00 p.m. PT two banking days prior to the check date.

Now you can finish processing the paycheck:

  1. On the Enter Payroll Information window, select Continue.
  2. In the Make Employees Inactive window, select Make Inactive to make the employee inactive. They won't show up on payroll anymore. Or select Keep as Active.
  3. Review the amounts for each employee.
  4. Review the Check/Direct Deposit printing options.
  5. When you're ready, select Create Paychecks.

For QuickBooks Desktop Payroll Assisted users, or if you send checks by direct deposit

If you have QuickBooks Desktop Payroll Assisted or use direct deposit, follow the steps to send your payroll information and direct deposit paychecks to Intuit.

Important: QuickBooks Desktop won't warn or charge a late payroll processing fee of $100 as long as:
  • The employee has a release date in the employee record that matches the payroll send date (or an earlier date).
  • The paycheck date is today or later.

Step 3: Update your employee's payroll status

Once you have created the final paycheck for your employee, update their employee status in your payroll service.

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