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Dobbeck: Avoid common termination pay mistakes

Published: Thursday, Oct. 24, 2013 5:30 a.m. CST

Illinois has many rules regarding what must be included in an employee’s final paycheck and what deductions can and cannot be made.

This column addresses some of the common errors employers make with final pay.


• Include both earned and unused vacation as well as vacation that is being accrued toward the next vacation period. For example, if your vacation year runs from Jan. 1 to Dec. 31 and an employee earned 10 days of vacation Jan. 1 and had not used any when he or she terminates employment on March 31, that employee’s final paycheck should include the 10 days earned on Jan. 1 as well as 2.5 days that accrued since then.

• Pay a prorated amount for any bonus the employee would have earned at some date in the future. For example, if employees earn a bonus based on profits each quarter and an employee leaves in the middle of the quarter, he or she is entitled to 50 percent of the bonus amount.

• For cash advances, employers may make deductions from the employee’s final paycheck providing the employee has authorized the deduction and the employee’s final wages do not fall below minimum wage. It is best to get a promissory note at the time the loan or cash advance is made so collecting after termination is easier.

• Deductions also are permissible for things that benefit the employee, such as insurance premiums. The list of permissible deductions from an employee’s final paycheck is very limited, so beware.


• Deduct pay for borrowed vacation time. If you allow employees to borrow against future vacation earnings, the money equivalent cannot be deducted from their final paycheck. A better practice is to allow the employee to take the time, but reserve paying for the time until it is earned.

• Make any deductions for uniforms, office equipment, damages, tools or any other item – even if the employee agreed up front that the deduction could be made. You are allowed to ask the employee to sign an authorization at the time the final deduction is made, but former authorizations do not hold at termination, except for loans, education or cash advances.

• Withhold the final paycheck until equipment or property is returned. Employees have the right to receive final pay on the next scheduled company pay date.  

• For exempt employees, employers do not need to pay the employee for the entire week if the employee is terminated mid-week. In those cases, determine the daily or hourly rate and pay out only for the days or hours worked. 

• Finally, in Illinois the final paycheck is due on the next regular pay date, not on the date of termination.  

Keep in mind that even if you have policies in place stating what will be deducted, what must be paid back and how and when vacation and bonuses will be paid out – the law dictates circumstances surrounding your employees’ final pay, so it is best to learn your responsibilities.

• Karla Dobbeck is president of Human Resource Techniques Inc. Reach her at 847-289-4504 or email 

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