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Processing Termination Pay for US-Based Employees

 While reducing the number of pay cycles typically has the greatest impact on overall Payroll processing costs, eliminating special handling exceptions that require manual processing and physical checks can have a big impact on total processing costs.  The HR department’s assumption that there needs to be a manual check-in hand at the exit interview, particularly when the termination is involuntary, isn’t always the best option.

To better understand the issue, a Payroll Manager at a member company used iPollingTM to find out how companies process termination pay for US-based employees, including a question to understand the scope of states where the respondents have employees.  The first question asked, “In what form do you typically process final pay for employees?”, with response options selected including direct deposit, paper check, and pay cards.  While paper checks were typically used by 17% of the companies, the direct deposit was the most prevalent method, with 74% of companies using this approach.  Here are the details:

 ipolling results on the form of processing final pay for US-Based Employees termination

The second iPolling question asked about the number of US states where a member company has employees.  This response is helpful to understand the context of responses since internal policies are often set based on local requirements that can vary from state to state.   Interestingly, the number of states covered by member companies is extensive, with 87% of companies having employees in more than 20 states and 61% have employees in more than 40 of the 50 US states.

 ipolling results on US-Based Employees number of states that have employees processing payroll

As suggested in the comments below, the best approach is to limit as many special handing requirements as possible, and create a manual paper check only when absolutely necessary.  Below is a selection of member comments:

·         Terminated employees are paid their final wages on the next payroll run.

·         Primarily direct deposit, although we also use pay cards in some circumstances.

·         We process final pay in one of three ways depending on the state and the type of termination.  If possible, it goes on direct deposit or pay cards.  When and where the timing or state does not allow for a pay card or direct deposit, then a paper check is used.

·         We process according to their normal method of pay (direct deposit, check, or pay card). However, most of our employees use direct deposit.

·         Primarily direct deposit; however, pay for involuntary termination is governed by state laws which typically require same-day settlement or payment within 24-hours. In these involuntary cases, the majority of final payments are processed by check.

·         Primarily direct deposit, although it depends on whether the employee works in a state requiring us to pay immediately or the next day for involuntary terminations. In these cases, a check is issued. Direct deposits can often show up in an employee’s bank account prior to the exit interview that HR has with the employee.

·         Most often final pay is processed on the next scheduled payroll, although some states (for example, California) require payment by paper check on the last day of work.

·         Typical method of payment is direct deposit. Checks are issued on occasion where timing and state requirements make it necessary. We use pay cards for remote locations in states requiring check-in hand.

·         We will create a direct deposit if requested. We have just begun using pay cards in 2 of our locations, with plans to roll out pay cards to more areas later in the year. Pay cards will be another way of paying terminating employees if the employee already has a pay card.

How do your company process final termination pay for employees?  Do you have an opportunity to reduce the number of checks issued when employees terminate?

Who are your peers and how are you collaborating with them?



 “iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated e-mail system, Peer MailTM, members can easily communicate at any time with others who participate in iPolling.


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