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If you're like most business owners, you prefer to minimize what you pay to departing employees, whether the departure is your doing or theirs. Of course, if an employee is salaried or paid by the hour, you have to pay at least for the time he or she actually worked. State law stipulates how quickly you must pay. Some say the next day. Many stipulate the next normal payroll date for your company.
When employee compensation includes bonuses, commissions or other contingent amounts, post-employment compensation gets a little more complicated. To minimize the risk that an employee could win a claim for post-departure contingent compensation, be sure all your employment- and compensation-related agreements and policies clearly stipulate that no bonus, commission or other contingent-type compensation will be paid to any employee following his or her departure. Place similar language in your employee manual or handbook.
State law could construe certain types of bonus or commission payments as wages, requiring that they be paid. Your best bet is to consult an employment law attorney in your state about types of compensation agreements you make with your employees as well as optimal avenues for both complying with the law and limiting compensation you have to pay to departing employees.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2010.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
D.L. Perkins, LLC is solely responsible for this content.
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