No matter the size of your business, or how good your retention rate is, from time to time, an employee resigns in favor of other opportunities. For them, it means a new chapter in their professional life. For you, it means closing the book on their employment with your company.
On the surface, that may seem like a simple task: you provide them with their final paycheck and their time with you is over. In reality, preparing for an employee’s departure involves many steps, with factors like company policies and state laws to consider.
To ensure you are following all related rules and regulations, and creating a good experience for both you and the employee, it’s a good idea to create your own custom termination checklist and use it each time you offboard an employee. We’ve assembled a list of six fundamental termination tasks to get you started.
1. Obtain a Resignation Letter
The process of ending a worker’s employment often begins with a written or verbal statement of their departure. Although there are no federal or state laws that require a resignation letter, obtaining a letter is a relatively common practice.
Similarly, many companies request a two-week notice, though it’s not required by law. A notice period gives you a chance to make plans to cover shifts, begin the termination process, and begin recruitment activities to backfill the position.
If a written letter and a two-week termination notice are desired, be sure they are included in your employee handbook and then be consistent in applying the rules to all employees.
2. Request a Current Mailing Address
After your employee leaves, there will be documents you will send to them via mail such as COBRA notices and Form W-2. Make sure you have their current mailing address before they depart. You should also ask them to contact you if they move after their employment is over. This way, they won’t miss receiving critical documents in the months following separation.
3. Determine Final Pay
Perhaps one of the most important steps – especially from a former employee’s perspective – is issuing their final paycheck. A lot surrounds an employee’s final pay, such as wages due, whether it’s paper or direct deposit, and whether it will include their accrued paid time off (PTO) or not. Much of this will depend on your company policies as well as your state’s laws.
Consider these examples that highlight the complexity of final pay:
- When an employee quits in California, they must receive their last paycheck with their unused PTO within 72 hours of their departure. If they’re fired, they must be provided this pay on the day they leave.
- In Tennessee (and many other states) an employee who quits must receive their final paycheck on their next regularly scheduled payday, or within 21 days (whichever comes first).
- In Georgia, there are no state laws surrounding an employee’s final paycheck, so company policy takes precedence here.
- Some states require payout of all PTO, even if your policy combines vacation and sick pay into one plan, and others leave it to company policy.
Check with your state Department of Labor and create a policy that is consistent with their rules and make this part of your checklist.
Another factor to consider when issuing final pay is whether it will be made via a paper check or direct deposit. Most often, it will be electronic. However, some states require immediate payout in certain situations (like California). In these cases, you must issue a paycheck on-site, then enter it in your payroll system to ensure proper record keeping and tax deposits. No matter what the circumstances are, your departing employees must receive their last paycheck promptly.
Also Read: 6 Tips for a Stress-free Payroll Process
4. Discuss Benefits
Many employees who leave their jobs will have questions surrounding their benefits. Sit down with them to discuss what happens to each according to your company policy.
- Let them know what day their health benefits will terminate. Most plans allow former employees to use their insurance until the last day of the month they quit. For instance, if an employee leaves June 3, they would be covered through June 30. Be sure to communicate the coverage termination date to your benefits carrier as well.
- Record the benefits end date to initiate Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage. This is a government policy that extends health benefits from an employer plan at the employee’s expense. Let the exiting employee know that they will receive information regarding payment and due dates from your COBRA administrator.
- For employees participating in your company’s retirement plan, discuss 401(k) options. They may be able to roll over their current balance into their new employer’s 401(k) or an Individual Retirement Account (IRA) if the new employer doesn’t have a plan. Money in a 401(k) account can also be cashed out, though the employee will owe taxes on the full amount and may be subject to a penalty for withdrawing the money prior to retirement age.
5. Remove Access to Payroll or HR system
Removing your employee’s access to your systems, such as a customer relationship management (CRM) tool, or accounting system, should happen on the employee’s last day. Access to HR or payroll systems with employee self-service (ESS), where employees can check pay stubs and W-2s, doesn’t necessarily need to be removed on the employee’s last day. You might allow terminated employees to access that service until the current year’s W-2s have been delivered and tax filing day has passed.
If the ESS system is read-only, there is little reason not to continue to provide access. If your employee system allows for other actions such as messaging managers or clocking in and out, you might consider changing terminated employees’ system access to restrict them to just the information you want them to see. Otherwise, terminate access on the employee’s last day as you do with other systems.
For former employees who have admin access to the payroll or HR system, those who process payroll, for example, this step is even more critical. In fact, if you can, this access should be removed when they exit the building on their final day at the latest.
6. Retrieve Company Property
Request the return of company equipment before the employee’s last day. This can include an array of items like building access cards, computers, chargers, headsets, and keyboards. Once you receive those items, work with the appropriate department to let them know the property is back in your possession. Your termination checklist should include all of the items assigned to employees so you can account for each one.
Generally speaking, no company wants to see an employee leave. That’s why it’s best to know what to do beforehand to streamline their departure. From discussing their benefits, getting their mailing information, calculating their final pay, removing system access, and retrieving company property, there’s a lot to do. Recording each task in a checklist customized to your state and your company policies can help ensure you don’t forget an important step as well as ensure fair treatment of all separated employees. A good offboarding experience can leave employees with a positive view of your company, making them more likely to refer potential employees and customers, or even consider an offer of employment from your company in the future.