The Basics of Hawaii Final Pay Law
The final pay law in Hawaii – which mandates an employer’s obligation to pay a terminated employee his or her final wages – is meant to promote an efficient and orderly transition for terminated employees. These laws also serve to avoid disputes and misunderstandings over wages upon termination. The final pay statute minimizes the need for wage payment litigation, and streamlines resolution where litigation does occur. As discussed further below, Hawaii’s final pay law imposes obligations on both employers and employees and applies to all gradations of fired employees.
Hawaii’s final pay law applies to all Hawaii employers, with few exceptions. It applies to overtime pay, commission, and bonuses as well as wages . Hawaii law also imposes penalties on employers who fail to timely pay employees their final wages. There is little doubt that those penalties are meant to incentivize employers to strictly comply with pay laws and to minimize the need for lawsuits.
A large part of how well the final pay law incentivizes compliance is how an employee is discharged. That is to say, this law applies to all discharged employees, regardless of whether their discharge was voluntary or involuntary (even if the employee quit or resigned). The final pay law makes no distinction between the timing of the discharge. In other words, an employee who was terminated for, e.g., poor performance, is entitled to the same final pay as an employee who quit on good terms.
Timelines for Hawaii Final Pay
In line with the general deference shown by Hawaii courts to claims for wages, Hawaii places relatively short time limits on final pay. Hawaii law generally requires payment of an employee’s final wages "at, or before, the end of the month and no later than fifteen days following the date of termination." The day of termination is when "the employee quits, is fired or is laid off." Hawaii courts have held that "[e]mployees resigning must be afforded the full benefit of their contract with respect to severance or final wages, including the time for taking such wages, where no special termination agreement exists." This means that if the employment contract calls for monthly pay periods, the employee must wait until the end of the month for the final wages to be paid, unless the contract allows an earlier payment of wages following termination. The Hawaii Supreme Court has clarified that while the statute applies to "the ‘date of termination’ and not the ‘time of termination,’" even if an employee quits on the first day of a wage period and receives payment leaving a balance due, the employee will not have been paid final wages within the meaning of the statute until the employer provides employee with the wages owed after the date of termination. However, this should not be the case in the event of an involuntary termination, where an employer may await the end of the month, or follow the contract to pay an employee who is laid off. While timing contingencies are legally more favorable to employers in the event of a layoff, overall timing is still an important consideration for employers wishing to stay ahead of any possible wage claims.
Calculating Final Pay Wages in Hawaii
Generally, employers in Hawaii must pay an employee their final wages no later than the next regular payday. However, the Hawaii Department of Labor and Industrial Relations ("DLIR") has provided some clarification as to the components of "final wages," which do not include commission or bonus wages.
As noted in the DLIR fact sheet on final pay: Final wages are: (1) regularly scheduled pay (e.g., hourly wages for hours worked, wages for work as piece workers, salaries, reasonable collection costs for returned checks previously issued to employees, wages for paid time off, any amounts withheld from paychecks without the employees knowledge or permission, and so forth) (2) any additional wages that are due and unpaid (e.g., termination wages, nonpayment of previously earned overtime wages, and so forth). The DLIR also provides the following examples on how to calculate final wages: Example 1: When an employee who is salaried is being terminated, the employer must calculate the amount owed to the employee by dividing the employee’s weekly salary by the number of work days in the week to obtain a daily wage and then multiply the employee’s daily wage times the number of days until the termination date. For example, if an employee’s salary is $500 per week and the employee works 5 days, the employee receives $100 for each day worked. Suppose the employee is being terminated on Thursday, and the employee has already been paid through Wednesday. The employer must pay the employee $200 ($100 x 2), representing the employee’s daily wages for Thursday and Friday. Example 2: If the employer pays an employee two weeks in advance, upon termination, the employer withholds two weeks’ wages from final pay. However, the DLIR states that the employer may withhold any other benefits or amounts to which there is an agreement between the employer and employee. For example, when you return uniforms, you may be charged at the uniform costs of computes, for keys; your access to sensitive information That is, the employer may make deductions from final pay or the employer may seek repayment from terminated employee for any amounts the employer is obligated to collect from surrendered property of any property that the employee owes a debt to the employer.
Employer Responsibilities and Penalties
Employers are subject to a range of legal obligations to provide final pay to all employees whose employment ends. Some of those obligations are created by statute―in particular, they are spelled out in the "wage hour law" that applies throughout the state. Other obligations are created through agreements that the employer has with the employee (such as in a contract, a collective bargaining agreement, or an employee handbook).
In addition to obligations under the wage hour law, employers must also comply with finish-all-labor"-as-you-go provisions in the Hawaii Revised Statutes―something that we address in another part of this website.
Employers can face legal penalties if they do not meet their obligations to provide final pay. Workers may be entitled to recover their final pay by filing a lawsuit against their employer. Additionally, if an employee has been deprived of final pay for seven days or more (i.e., the employee doesn’t receive any of the final pay on time), he or she may be entitled to recover up to $500 in statutory damages.
Exceptions and Special Situations
Hawaii allows for exceptions to the final pay laws. Wage Hour Division rules permit employers of certain industries to establish their own specific pay period at which time they can schedule their final payment of employee wages. The exceptions apply to employers in the following industries: agriculture (including the raising and production of mushrooms, pineapple and sugar cane), construction, and ship repair and shipbuilding on board vessels. This exception, however, does not relieve employers in those industries from the 72-hour rule for paying terminating employees and 10-day rule for paying resigning employees.
These unique exceptions allow employers in these three industries to consistently pay terminating employees within 72 hours of termination , including weekends and holidays; and, resigning employees, regardless of the reason for separation from employment, get paid within an agreed upon time between the employer and employee not to exceed 10 days. For employees with frequent terminations and resignations, it is often less burdensome for the employer to identify a single payday for all separated employees during the course of a pay week rather than process payroll more frequently for both terminating and resigning employees. Employers must take special care, however, to ensure the timing of their voluntary pay time exception does not result in the employer paying a lesser amount than mandated by the state’s pay frequency law under section 388-2(b).
What Employees Should Do If Final Pay is Delayed
Employees in Hawaii who fail to receive their final paycheck should take specific steps to ensure they obtain the money they are owed. Here are four steps that can prove helpful for employees seeking recourse for delayed payment of wages:
- Document the details of the nonpayment. Before taking further action, an employee in Hawaii should write down as many details as possible regarding the nonpayment. This should include the last date of work, the date the employee expected to receive payment, the dates of services performed, the dates when the employee worked over 40 hours in a week, and pay stubs.
- Communicate clearly and directly with the employer. The employee should communicate in writing with the employer to let the employer know that he or she has not received payment for the final paycheck. If the employee does not receive a clear reason as to why the payment was delayed, he or she might need to consider taking legal action.
- Pursue government agencies if the employer does not pay. The employee still has the right to claim his or her wages if the employer fails to provide the final paycheck. Employees in Hawaii can pursue claims with the Department of Labor and Industrial Relations (DLIR) in the case of nonpayment, and the DLIR is obligated to investigate the claim.
- Consider other legal avenues. An employee in Hawaii has a variety of legal options when it comes to seeking compensation for unpaid wages. They might decide to submit a wage claim to the Hawaii DLIR. In cases of unfinished work, the state might cover the employee’s unpaid wages, up to $1,500. If the employee does not want to involve the DLIR, he or she can also file a civil claim in the state courts. Employees have up to two years to file a civil claim in Hawaii.
Recent Developments and Trends
The Hawaii legislature recently amended the time by which employees should be paid their final compensation to provide more protections to the employee. Common findings by the DLIR include the failure to pay final compensation to the employee within the required time periods. Complaints of this nature are primarily filed by employees in response to departure from employment. This is not an uncommon complaint and has been addressed in various forms by the legislature in the past to provide greater protections to employees.
Prior to the amendment, section 388-2 Hawaii Revised Statutes provided that an employee was to be paid all final compensation due no later than the next business day or on the expiration of the pay period. As amended, section 388-2 is now divided into two subsections which provide differing requirements for the timely payment of final compensation to an employee.
Subsection (a) prescribes the general requirement that unless otherwise provided by collective bargaining agreement, employer must pay all final compensation owed to any employee no later than the next business day after the termination of employment. The amendments to subsection (a) clarify that during the notice term for voluntary terminations, this requirement shall apply only if the next business day does not fall within the pay period or other paydays established by employer and agreed to by employee.
Subsection (b) addresses payments due on separation due to layoff or for any reason other than discharge. Under subsection (b), the employer is still required to pay the final compensation no later than the next business day following termination. However, the amended form to subsection (b) clarifies that the one business day requirement only applies in the event the total wages owed to employee do not exceed $2200. If the wages owed exceeds $2200, then the employer has four business days to pay. Examples provided by the amended statute include the following: There is nothing surprising about this legislation other than it looks to codify common practice and interpretation allegedly utilized by the DLIR. However, prior to these recent amendments, many employers have interpreted that final compensation should be paid to an employee terminated for misconduct on the next business day. However, as clarified by the statute and even stated by the DLIR, that is incorrect when the total amount of final compensation due exceeds $2200.
Conclusion and Best Practices
Employees in Hawaii have specific rights with respect to when they must be paid upon termination of their employment. Because of these stringent requirements, Hawaii employers must ensure that they understand and take appropriate steps to avoid the penalties associated with non-compliance. The other key to avoiding penalties in Hawaii is to ensure that your employees are classified correctly and are paid properly for all time worked.
Employers can best protect themselves and their employees by following these best practices:
• Issue a written policy to employees stating that they must review all of their time worked on a weekly, bi-weekly or monthly basis, depending on your company’s pay cycle , and notify you immediately if there are any concerns with their time.
• Ensure that employees understand that they must turn in all time worked within the company’s normal pay cycle.
• Train employees about proper timekeeping practices, including that all work performed must be recorded, whether on-site or off-site, and manage and respond to employees’ questions regarding whether they have performed compensable work.
• Ensure that all employees are properly classified, especially all exempt employees. Remember that with respect to exempt employees, whether they meet all of the necessary requirements under the law should be assessed on a case-by-case basis.
