Employee Termination Checklist | How to Stay Compliant & Professional

Consult This Employee Termination Checklist to Keep Things Running Smoothly

Employees leave companies every day to pursue growth opportunities, accommodate personal lives, or experience change. As an employer, you hope employees won’t leave your business, but you know this is wishful thinking. When an employee resigns, you need to know what to do.

The average annual overall turnover rate is 19%, according to SHRM. If a business with 22 employees has a turnover rate of 19%, it would lose four employees each year. Sounds like a lot of work, right?

Newbie and veteran employers alike struggle with the employee resignation process. It isn’t easy to remember everything you have to do when you have a million other responsibilities. To help, we’ve created an employee termination checklist.

Employee termination checklist

When an employee tells you they’re leaving your business, you might not know the exact employee termination procedure.

To start, you must collect information and property, pass out forms, and have a formal discussion with the employee. And, you need to update your payroll and HR systems to reflect the resignation.

Take a look at this exit checklist for terminated employees.

Talk to the employee

There are many ways an employee can tell you they’re quitting. They might send you an email, ask for a meeting, put a resignation letter on your desk, or tell you in your office.

Regardless of how an employee tells you, you need to be consistent and have a private conversation with them. Typically, it’s best to talk face-to-face.

During your conversation with the employee, you need to ask for a formal resignation letter if they haven’t already given you one. You also need to talk about the next steps in the process, including the employee’s last day, their responsibilities, and setting up an exit interview. Many businesses require two weeks notice from the time an employee tells you they’re leaving. Ask the employee to wrap up their work during this time.

Collect company property

Before or during the resigning employee’s last day, you need to collect any company property they were using. Examples of company property include a car, computer, cell phone, credit card, keys, or anything else you provided.

Remove employee access

When the employee leaves, they should not have access to anything at your business. You must remove their access to the building and computer network. Whether they enter with a key, use a code, or scan a badge, you need to make sure they cannot get into the building.

You will also need to make sure you remove employees from your computer network. They should no longer receive company updates, messages from co-workers, or calls from clients. Employees leaving should not be able to log into company databases, either.

Pass out paperwork

Before an employee leaves, you need to pass out and collect forms. You need to provide a change of address form in case the employee moves after quitting. That way, the employee will receive Form W-2 when you send it to their address. And, you need to gain the employee’s written permission to participate in future reference checks.

Distribute letters indicating the employee’s benefits as well. The letter should detail the status of their health insurance, retirement plan, and any other small business employee benefits they received at your company.

If you are required to provide COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage, give your employee information about this. COBRA allows employees to temporarily continue their insurance plans even after they are terminated. You must contact your group health plan and tell them the employee is eligible to receive COBRA continuation coverage.

Have an exit interview

Having an exit interview is one of the most important parts of the termination process. Normally, a representative from HR is present during the exit interview.

During the exit interview, you can answer any questions the employee has about benefits or the final paycheck. If you asked the employee to sign a noncompete agreement when they started working at your business, you need to review it with them during the exit interview. You must make what the employee is not allowed to do clear, as well as the other terms of the noncompete.

Once you talk about the legal parts of the employee’s departure, ask questions about their employment. Find out what they liked and didn’t like about working at your business. Encourage communication, and take notes. That way, you can make changes if you see fit.

Let people know

Although you shouldn’t broadcast your employee’s desire to leave over a loudspeaker, you need to let people know. If you have an HR department or representative, they will be heavily involved in the process. HR needs to know so they can prepare paperwork and update files. If you have an employee who handles payroll, make sure you notify them, too.

It’s important that you let the rest of your employees know that their co-worker is leaving. An employee’s resignation could affect the workload of your current staff, especially if you don’t plan to fill the position. And, it’s important for morale that you are open with your employees.

You might also need to let the resigning employee’s clients or customers know that they are leaving. That way, you can transfer information over to a new employee and provide another employee’s contact information to the customer. Send an email or letter informing clients of employee resignation.

Update records

As a small business owner, you are required to maintain accurate records. When an employee leaves, you need to make sure your business reflects the change.

Remove terminated employees from your payroll. If you use payroll and HR software, update your records to show that the employee is not working for you.

Make sure to hang onto payroll records for at least three years, according to the FLSA payroll records retention requirements. And, hold onto records of employment taxes for at least four years, according to the IRS.

If you fired the employee, keep records to backup your reasoning. These records can include disciplinary actions or performance reviews.

Distribute final paycheck

You will need to decide whether you want to give the employee their final paycheck during the exit interview or whether you want to mail it to them. The final paycheck should account for any money you owe the employee or anything they owe you.

If the employee has accrued paid time off, you will need to include the value of it in their final paycheck. You can find the value by multiplying how many hours they have accrued by their hourly rate. You will also need to include bonus pay, commissions, or any reimbursements you owe employees.

Some employees use personal time off before they earn it. If an employee spends personal time they have not yet accrued, you must deduct it from their final paycheck. And, if you provided a salary advance, the employee must pay you back for that. If the amount the employee owes is greater than their final paycheck, you will need to collect the remainder from them.

If you offer severance pay to your terminated employees, communicate to the employee how they will receive their wages.

Checklist example

Here’s a visual checklist so you know what steps you have done and which you still need to do:

Sample employee termination checklist

Tips for when an employee resigns

You might feel blindsided when you lose an employee. Not to mention, the median cost of turnover is 21.4% of an employee’s annual salary. Regardless of the financial burden and time constraints employee turnover puts on your business, you need to keep your cool.

Knowing what to say when an employee resigns can be a challenge. First and foremost, stay professional. Have a discussion with the parting employee. Put your personal relationship with the employee aside when you talk with them.

Ask questions about why the employee is leaving and where they are going, but don’t interrogate them. You shouldn’t put the employee down, talk badly about them, or ignore the situation.

Talk about what work the employee needs to wrap up and let them know what other steps they need to take before leaving.

Make sure you don’t neglect the rest of your employees. They might have questions or concerns about taking on the resigning employee’s workload. Create a plan and keep the lines of communication open.

Easily add or remove employees from your payroll with Patriot Software. Setting up your payroll and employees is hassle free with our online payroll software. And, we offer free setup and support. Get your free trial now!  

This is not intended as legal advice; for more information, please click here.

Stay up to date on the latest payroll tips and training

You may also be interested in: