Learn when and how to create final paychecks in QuickBooks and Intuit 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: Learn the difference between termination and severance
Final paycheck (for termination)
If you terminate an employee for any reason, including discharge, layoff, or resignation, you must pay them for all time owed.
How and what you pay depends on the agreement you have with your employees. You also need to be compliant with state and federal tax laws. Reach out to your state agency for more info about your state's legal and tax requirements.
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. Reach out to your state agency for more info about your state's legal and tax requirements.
Severance payments are subject to regular federal taxes. You can pay severance as a regular, unscheduled, or bonus/ commission paycheck. If you pay severance pay as a bonus or commission, you must use the supplemental withholding tax rates.
You can also create a severance paycheck using a severance pay earning type. If you have QuickBooks Online Payroll or Intuit Online Payroll, here's how to add or change pay types in Online Payroll. If you have QuickBooks Desktop Payroll, here's how to create a bonus payroll item in QuickBooks Desktop Payroll.
Sick or 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. 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.
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.