If you're an admin with the required permissions, you can dismiss and rehire employees from your Gusto admin profile. If you don't see the option to start an employee dismissal, reach out to the primary admin of the account.
When you dismiss an employee, there are many implications for their payroll and benefits. Use the dropdowns below to learn what happens when you dismiss an employee, including the timeline of notifications and important compliance implications to consider.
If you need to run a dismissal payroll, or pay a dismissed employee, head to this article. If you have no more employees left to pay, learn how to cancel your Gusto account. To dismiss or rehire a contractor, follow the steps outlined here.
If you have more than two pay schedules, and dismiss an employee who was the only person remaining on the pay schedule, it cannot be deleted. At this time, Gusto also cannot delete the pay schedule on your behalf.
If you'd like to remove the pay schedule the single employee was on:
Gusto will recognize that there are no employees assigned to the once-used pay schedule and remove it automatically.
If your health insurance benefits are managed by Gusto, we’ll automatically notify your insurance carriers when you dismiss your employee. Their coverage will end per the policy on file with your carrier. This is usually the end of the month, but could vary depending on your contract.
We'll also send a COBRA Election notice to the dismissed employee three days after they're dismissed to let them know about their continuation options. If this is your last active employee enrolled in an insurance policy, your carrier(s) will likely cancel the policy, including any continuation (COBRA) enrollments, and no employees will be able to enroll in continuation (COBRA).
Dismissing employees will remove them from future payrolls. We'll still retain their past payroll information for tax purposes and for generating their W-2 form at year end.
We recommend that all employees use their personal email address for their Gusto accounts so they can access their account after they are dismissed. Make sure your employee has their personal email associated with their Gusto account.*
If you update an employee’s email from their work email address to their personal one, the employee will be notified via email to their personal email address indicating they need to create a new password with the new email.
*Gusto may communicate with dismissed employees about enrollment in federal COBRA or state continuation in the event they lose company-sponsored health insurance coverage, or in the event that other required notices or benefit issues arise. Gusto may provide the employee’s email address to third parties who help facilitate communication about federal COBRA, state continuation coverage, and other benefits. Check out our terms of service for more information about when Gusto shares data with third parties.
*Employees may also receive a notice from their health insurance carrier when their coverage ends, certifying their coverage start and end dates. If an employee contacts their existing carrier directly asking about coverage start and end dates, and the carrier has a processed future termination date on file, the employee is entitled to that information.
*Employees enrolled in life insurance coverage will receive an email from Gusto notifying them of their options to continue or port their life insurance.
Some states have laws that require unused paid time off (PTO) be paid out when an employee is dismissed. Some states don't require the payout of accrued and unused sick leave as a matter of law, but do require employers to follow their written PTO policies, including any promise to pay out accrued and unused benefits at the time of dismissal. Some states don't have any requirements in this regard.
For both scenarios, on a dismissal payroll, a check box is provided on the time off screen so you can designate whether the PTO balance is to be paid out.
Employees with unlimited time off policies won't have a check box available during the dismissal payroll run.
Some states have laws which require dismissed employees to be paid on an accelerated basis. The timing of final wage payments may vary depending on whether an employee is being let go or if they're quitting. It's very important to understand that some states impose substantial penalties for not paying departing employees within the time limits specified by the states’ laws.
Note: Dismissal payrolls will default to a check payment method, which the company will need to issue directly. If you'd like to pay by direct deposit, verify that you're in compliance with state law. Once you do so, you can update the payment method by clicking caret next to Check, and selecting Direct deposit.
You'll be asked to acknowledge that you've reviewed your state's laws regarding final payment.
Here's a resource that may be helpful in finding the timing laws in your state. We also recommend checking with your state’s department of labor (or equivalent) for their specific regulations around timing and method of payment.
These scenarios assume your employee has a dismissal date of the current day or a day in the future. If you're backdating a dismissal, see the Backdated dismissals dropdown.
Payroll only
If you only use Gusto for payroll, no emails will be sent to your employee indicating they’ve been dismissed.
Payroll and health insurance
If you use Gusto for payroll and health insurance, your employee will receive a notice letting them know of their right to continue their health insurance coverage via federal COBRA or similar continuation of health benefits under state law.
If your employee is eligible for state continuation, they’ll receive an email from Gusto 3 business days after the dismissal date with enrollment information.
If your employee is eligible for federal COBRA and your company is not set up with our COBRA TPA BASIC (formerly BASIC Pacific), your employee will receive an email from Gusto 3 business days after the dismissal date with enrollment information.
If your employee is eligible for Federal COBRA and your company is set up with our COBRA TPA BASIC (formerly BASIC Pacific), the employee will receive a notice in the mail about their right to continue coverage.
Note: Employees may also receive a notice from their health insurance carrier when their coverage ends, certifying their coverage start and end dates. If employees contact the carrier directly and asks about their coverage, if the carrier has a future dismissal date on file the employee is entitled to that info. If you're dismissing the last active employee on your insurance policies, your policies will likely be canceled and continuation (COBRA) coverage won't be available.
Payroll, health insurance, and life insurance
Employees will receive all notifications detailed in paragraph 2 above, plus employees enrolled in life insurance coverage will receive an email from Gusto notifying them of their options to continue or port their life insurance (a process of taking their life insurance with them). They'll get this email one day after their last day of coverage.
AP Intego, Guideline, commuter benefits, FSA, and HSA
If you use any of these services, they won’t automatically send notifications to your employees upon dismissal.
Note: If your employee decides to initiate a 401(k) rollover with Guideline, Guideline will send communications to your employee.
While we hope that you'll be able to plan for your employee’s dismissal, we understand you may have to backdate a dismissal in what are, hopefully, rare cases. If the backdated dismissal date you need is not available for selection in Gusto, contact us through the Help or Priority support section of your account so we may assist you in entering the correct date.
All notifications for backdated dismissals are the same as the section above, with the exception of COBRA notifications. Employees with a backdated dismissal date will receive an email notifying them of their eligibility for COBRA one business day after the backdated dismissal date was entered in Gusto.
Keep in mind, when it comes to health insurance, it's industry standard to notify carriers in advance about dismissals, enrollments, and qualifying life events. This makes sure coverage begins and ends correctly. When dismissals are backdated, companies may incur additional charges from their insurance provider(s) to process the retroactive changes and there may be, in some cases, amounts due for employees.
Many states require or recommend employers to provide one of the following to dismissed employees:
Even if your state doesn't require notification(s), it's a good idea to send dismissal letters for documentation purposes—they help demonstrate that the reasons for dismissal weren't discriminatory.
Does Gusto help with separation notifications?
Gusto doesn't provide or submit these notices of separation. For more information, visit your state’s department of labor website for their specific requirements. If you have questions about whether your dismissal process is compliant, consult with an employment attorney or labor agency.
Employees with garnishments
If you’re dismissing an employee with a garnishment, you’ll need to notify the collecting agency—some states require an additional form to be submitted detailing the dismissal. As always, you’ll want to refer to your state’s specific guidelines and requirements.
In the unfortunate event that an employee passes away, you can dismiss the employee to remove them from your Gusto account. For any questions on how to handle final pay for the deceased employee, you'll need to work with an HR professional or employment lawyer.
If your company's benefits are managed by Gusto, contact us from the Help or Priority support section of your account so we can work with the carrier to make sure benefits are handled appropriately.
Gusto will still file the employee's W-2 at the end of the year, so long as we're still your payroll provider. More information can be found on the IRS website.
When dismissing an employee (or when they depart on their own), employers must make sure they know when to:
Stay compliant
While employers often assume they should pay the dismissal paycheck on the company’s next scheduled payroll, it’s often the case that the payroll is scheduled for after the applicable dismissal payment deadline. This can lead employers to unknowingly violate the law.
The consequences of paying a departing employee late can be significant—ranging from penalties imposed by the state, to extra damages paid to the employee, or even criminal consequences in some states.
Use the table below to help inform you of whether your state has a specific deadline and/or unused vacation pay requirements.
This table was last revised Sept 2023.
State |
Dismissal paycheck deadline(s) |
Is there a requirement for paying out unused vacation? | Additional information |
Alabama |
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Alaska |
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Arizona |
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Arkansas |
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California |
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Colorado |
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Connecticut |
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Delaware |
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Florida |
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Georgia |
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Hawaii |
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Idaho |
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Illinois |
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Indiana |
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Iowa |
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Kansas |
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Kentucky |
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Louisiana |
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Maine |
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Maryland |
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Massachusetts |
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Michigan |
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Minnesota |
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Mississippi |
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Missouri |
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Montana |
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Nebraska |
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Nevada |
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New Hampshire |
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New Jersey |
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New Mexico |
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New York |
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North Carolina |
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North Dakota |
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Ohio |
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Oklahoma |
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Oregon |
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Pennsylvania |
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Rhode Island |
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South Carolina |
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South Dakota |
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Tennessee |
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Texas |
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Utah |
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Vermont |
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Virginia |
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Washington |
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Washington DC |
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West Virginia |
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Wisconsin |
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Wyoming |
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Dismissals can’t be reversed, so make sure that you want to end the employee's employment and remove them from future payrolls. Their info will stay in Gusto for your records, taxes, and possible rehiring. If your employee is going on a leave of absence, skip them on payroll instead of dismissing them
The information below is the same for both employees who voluntarily leave, or who are terminated.
Deductions
Employees who were paid through Gusto can not be fully removed from our system for compliance purposes. If you need to dismiss an employee that never started with your company, contact us through the Help or Priority support section of your account.
We understand this can be a sensitive matter. Once you've entered the dismissal details, no notifications will be sent to employees regarding their status change.
Other leaves of absence only differ in that they’re based on the employee’s request—for personal and/or medical reasons—instead of the employer requesting the leave.
How to handle a furloughed employee in Gusto
Furlough and leaves of absence are handled the same way through Gusto. Instead of dismissing the employee, you'll need to skip them on payroll to "furlough" the employee.
Follow the steps in this article to skip them on payroll until they return to work. You'll see the usual per employee charge on your invoice for this individual—skipping them on payroll(s) does not change the price per employee.
Furloughed employees who have benefits with Gusto
Skipping an employee’s payroll (i.e. placing them on furlough), will not terminate their benefits. However, carriers’ rules differ—to be compliant, you’ll need to reach out to your carrier to find out how long an employee can keep their health benefits while they're not actively working.
Once an employee returns to work and is paid through payroll, we’ll apply catch-up deductions to capture the deductions that were missed when payroll was not run for that employee. During the months that the employee is on furlough/leave, the employer is still responsible for paying the entire health insurance invoice to the carrier. This means that you’ll be covering the employee’s portion of the premium until we’re able to reinstate deductions upon the employee’s return.
COVID-19 & carrier flexibility
Some carriers are loosening their requirements on furloughs and insurance premiums in light of the impact COVID-19 is having on small businesses. Reach out to your carrier to find out how long an employee may be placed on furlough/leave while continuing insurance coverage and whether or not they’re offering options on premium invoice deferrals during this time.
To read about the difference between dismissing an employee and placing them on furlough/leave of absence, read this article.
Dismissing or laying off an employee
If an employee is not being furloughed, and will not be coming back to the company, follow the steps to dismiss them in Gusto.
Important: You can change the dismissal details up until the original dismissal date has passed. If you need to change an employee's dismissal date which is in the past, contact us through the Help or Priority support section of your account.
If you're an admin with the required permissions, you can rehire a dismissed employee right in your admin Gusto account. If you don't see the option to rehire an employee, reach out to the primary admin of your company.
When you rehire and employee, their original hire date will be replaced with the rehire date. If rehired within the same year, they'll only receive one W-2 for all wages earned.
At this time, sending new hire or offer letters to rehired employees is not supported.
Once you rehire the employee, they can sign into their existing Gusto account to confirm if their information is still accurate, and update it if need be.
The employee will become active in Gusto on the rehire date, and they'll be added back on the payroll. If you rehired an employee that left before joining Gusto, you'll be asked to fill out a few more details on the rehire date in order to add them as a new active worker.
To convert a contractor to an employee, follow the steps in this article.
*It’s our policy to guarantee lifetime access of payroll information to all users, subject to compliance with our Terms of Service.