Disclaimer
Texas law has specific deadlines for final pay, as well as limitations on what may be deducted from pay
in the case of an involuntary work separation (discharge, termination, layoff, "mutual agreement", and resignation in lieu of discharge), the employer has six calendar days from the effective date of discharge to give the employee the final paycheck; if the sixth day falls on a day on which the employer is normally closed for business, the employer may wait until the next regular workday to give the employee the final check
if the work separation is voluntary, i.e., the employee initiates the work separation, and continued work would have been available had the employee not chosen to give notice of resigning, or had the employee not abandoned the job, the deadline for the final paycheck falls on the next regularly scheduled payday following the date of last work; "voluntary work separation" includes resignation, retirement, walking off the job, and job abandonment
"final pay" includes all components of the pay - however, if a commission or bonus policy or plan provides for payment on a specific date or at a specific interval, the plan or policy will determine when such payments must be made - such plans or policies should always be in writing for the company's own protection
severance/wages in lieu of notice - the employer should decide whether to pay such post-termination pay in installments or in a lump sum. Texas allows either method. Under the Texas Payday Law, severance pay is not owed unless it is promised in a written policy. Be sure to understand the difference:
Most employers designate any post-employment wages paid to ex-employees as severance pay.
For purposes of unemployment compensation, however, it is important to know that such payments may not be severance at all, but rather, wages in lieu of notice.
Section 207.049(1) of the Texas Unemployment Compensation Act states that a claimant will be disqualified from receiving unemployment benefits for any benefit period in which he is receiving wages in lieu of notice. The Act does not, however, disqualify an individual from receiving benefits who is receiving severance pay. What, then, is the distinction?
Although the Act does not define wages in lieu of notice or severance pay, the courts have generally defined severance pay to be a payment the employer has obligated itself to make, either verbally or in writing, which is based upon a set formula, such as length of prior service. For example, an employer may have a company policy that a terminating employee is entitled to one month's wages for every year of service. This is severance pay.
Wages in lieu of notice are additional wages which the employer is not obligated to pay. They are paid only because the employer has chosen to give the employee no notice of termination. The amount of wages is not based upon longevity or length of service. For example, an employer may call an employee in for termination and offer him X number of weeks of wages to assist him during the time he is seeking new employment. No obligation + no notice = wages in lieu of notice.
Anytime an employer is paying wages in lieu of notice, that information should be provided to the Texas Workforce Commission local office on any response to an employee's claim for benefits. Keep in mind that payment of wages in lieu of notice does not stop receipt of unemployment benefits, but payments will be delayed until the wages in lieu of notice period has expired. This often results in a substantial savings to an employer because many people will have found another job by the time they are eligible for benefits.
Keep in mind that if an employer has a policy or practice of making severance payments or wages in lieu of notice, it will be obligated, under the federal law known as ERISA, to treat such benefits as a "welfare benefit" and to report them along with other forms of ERISA benefits in the IRS form for ERISA, Form 5500. ERISA is a very complicated statute that affects employment taxes, benefits, and employment policies and agreements. For more information, contact a qualified ERISA attorney.
Finally, remember in the case of child or spousal support orders to make the proper deduction from severance pay or wages in lieu of notice - for more information, click here.