Copyright© 2006 by School Services of California, Inc.

                                      Volume 19                   For Publication Date: August 18, 2006             No. 18

Ask SSC . . .

 Can We Hold Back Vacation Payout Checks
until the Next Tax Year?

Q.        In the past, we have been asked by employees who leave our district to hold back their vacation pay-out checks for issuance in the next tax year. The employees who usually make this request are those terminating in November and December just prior to the next tax year. Are we allowed to do this?

A.        No. There is the “constructive receipt” issue—a taxpayer cannot deliberately turn his/her back on income receipt for tax avoidance purposes—but also, the practice would run counter to Education Code requirements.

            Recognize that vacation pay is considered part of total wages. When an employee leaves your employment, all wages are due and payable in accordance with your district's normal payroll policies and consistent with the Education Code. These polices and Code sections do differ between certificated and classified employees. It is also important to note that the 72-hour rule in the Labor Code for payment of final wages applies to private sector employers and does not apply to school agencies.

            Certificated Employees

            When issuing final paychecks to certificated employees, school agencies should generally follow their normal payroll cycles, if the termination paperwork has been completed in time. For example, Education Code Section 87821 specifies that paychecks must be issued within five days following month end for a monthly salary payment (or, for teachers employed less than full time in certain programs, paychecks must be issued within 10 days following month end). For salaries paid more often than monthly, payment must be within eight days of the end of the pay cycle. If an employee presented termination paperwork to payroll in sufficient time prior to the normal payroll cycle, then the final paycheck would be cut within the normal cycle.  Education Code Section 87822 contains the timing requirements for extra service and summer pay.

            Classified Employees

            The timing of payment for classified employee salaries is determined by Education Code Sections 85244, 85260, and 88165. Thus, the termination check would be issued according to district policy and the operative code section to match the policy. For example, if your practice is to issue checks twice a month in accordance with Education Code Section 85244, then final checks for terminating employees would be issued within this same cycle.

—Sheila G. Vickers