Dismiss and rehire employees

Part 1: Pay schedules

Heads up: 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:

1. Edit how the employee is assigned—move the to-be dismissed employee to a pay schedule that will still be active once they're gone. 
2. Then, dismiss the employee.

Gusto will recognize that there are no employees assigned to the once-used pay schedule and remove it automatically.

Part 2: Employee email

1. We recommend that all employees use their personal email address for their Gusto accounts so they can access their account after they are dismissed. Please ensure your employee has their personal email associated with their Gusto account.*

2. 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.

   • Employees will have lifetime access* to their Gusto account in order to access their paystubs and tax documents.

*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.

Part 3: Paid time off laws

1. 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.

2. 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.

Part 4: Payment methods

1. 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.

2. Here is one 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.

Part 5: Dismissal notifications

Please note, 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, please see Part 6: Backdated dismissals.

1. Payroll only

   • If you only use Gusto for payroll, no emails will be sent to your employee indicating they’ve been dismissed.

2. 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 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 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.

3. 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.

4. 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. 

   • Please note, if your employee decides to initiate a 401(k) rollover with Guideline, Guideline will send communications to your employee.

Part 6: Backdated dismissals

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, please 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 Part 4, 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. 

Please remember, when it comes to health insurance, it's industry standard to notify carriers in advance about dismissals, enrollments, and qualifying life events. This ensures 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.

Part 7: Agency Requirements for Separation Notifications

Many states require or recommend employers to provide one of the following to dismissed employees: 

• Official notices of separation  
• Service letters that outline their employment details and reason for separation. 

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.

• Premium customers, or Plus plan customers with the priority support add-on, reach out to the HR Pros by heading to the Dedicated Support section of your admin profile.

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.

Employers must make sure they know when to:

• Legally pay departing employees.
  • Most states require that employers give departing employees their dismissal (or final) paychecks within a set period of time, or even on the employee’s last day of work. In some states, the time period varies depending on whether the employee quit or was fired/laid off. 
• Pay out unused vacation hours to departing employees (if required). 

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. 

• For additional information about the current requirements, visit your states’ Department of Labor website.
• If you still have specific questions about whether your termination payment process is compliant, consult an employment attorney.

 

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:

• Externally managed benefits: Automatically apply to the dismissal payroll.
• Benefits managed by Gusto: The dismissal payroll will always include one pay-period's worth of deductions automatically.
  • Important: Gusto cannot prorate deductions. i.e An employee is dismissed on 1/15/18 and benefits continue through 2/01/18, our system will not capture the remaining deductions the employee owes for the second half of the month.
  • If you'd like to apply additional deductions, you'll need to process the final payroll as an off-cycle payroll and choose to apply deductions.

To dismiss an employee: 

1. Click the People section and select Team members.
2. Click your employee’s name.
3. Click Start employee dismissal in the Actions section on the right-hand side of the page.
   • If you don't see this option, it means you don't have the required admin permissions to dismiss employees. Reach out to the Primary Admin to complete this.
4. Enter your employee's last day.
5. Select whether the dismissal is voluntary or not and then choose the most appropriate reason from the drop-down menu.
   • This information is important for state-specific forms and unemployment insurance.
6. Select the reason for dismissal from the dropdown.
7. Select how you want to pay their final paycheck.
   • I need to run a dismissal payroll—your employee will have a specific "Dismissal Payroll" generated for them and they'll be removed from all regular payrolls, even if there's a regular payroll before the employee’s last day. All final payments will be issued on the dismissal payroll specifically. 
     
     • Keep in mind: This payroll will default to a "Check" payment and Gusto does not issue checks, you must give the check to your employee.
       • If you'd like to pay by direct deposit, change the "Pay by" option by clicking the caret next to "Check" and selecting "Direct deposit".
   • I need to pay them on a regular payroll—some states require employees to be paid on their last day—review your state’s rules to ensure paying your employee on the normal schedule will be compliant.
   • I need to pay a different way—you can run an off-cycle payroll to manually calculate final amounts, or you can pay them outside of Gusto (but make sure to report a non-Gusto payroll so the amounts are recorded on tax forms).
   • I've already paid them.
8. Enter their personal email so they can access their Gusto account for any tax forms.
9. If applicable, select who will manage the dismissed employee's direct reports.
10. Enter any dismissal notes for you or other admins at your company (optional).
11. Click Save & continue.
12. If you have connected apps (e.g. Slack, Gmail, Greenhouse), choose the apps you want removed.
    • The accounts will be removed and deleted on the actual dismissal date—it's important to transfer over ownership of anything that the person managed in the app(s).
13. Review the timeline.
14. If everything looks good, click Dismiss employee.
15. Pay the dismissed employee's last payment:
    • Run a special dismissal payroll if you selected to do so—click the notification on the Home page or begin the process from  Payroll > Run Payroll > Special Payroll dropdown.
      • The special dismissal payroll will appear in the Run Payroll tab after the final day of employment.
    • If you didn't select to run a dismissal payroll, your employee's last payment will be included in the next regular payroll.

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. 

If you need to dismiss an employee that never started with your company, please contact customer support through the Help or Priority support section of your Gusto account. Employees who were paid through Gusto can not be fully removed from our system due to compliance purposes.

To view a list of all dismissed employees: 

1. Click the People section and select Team members.
2. Click Show dismissed people, which is located on the right side of the page.

Note: 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.

Furlough is when an employee is placed on a temporary, unpaid leave at the request of the employer. An employer would place an employee on furlough when they don’t need them to work for a specific period of time—like a downturn in business, or seasonal demands—but the employee is expected to return at a later date. 

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, you'll need to contact support through the Help or Priority support section of your account.

Change dismissal details

1. Click the People section and select Team members. 
2. Click the employee's name. 
3. At the top of the page in the gray box, select Change {employee's name} dismissal details.
   • The option to change dismissal details will only appear up until the original dismissal date has passed.
4. Change the relevant information.
5. Click Save.

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. 

Rehire a dismissed employee

At this time, sending new hire or offer letters to rehired employees is not supported.

1. Click the People section and select Team members. 
2. Click Show dismissed people.
3. Click your employee.
4. Click +Rehire Employee in the Actions section found on the right side of the page.
5. Enter your employee's rehire date.
6. Select your employee's work location.
7. Select whether or not you'd like us to file a new hire report.
8. Click Rehire Employee.

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. 

Change a rehire date

1. Click the People section and select Team members. 
2. Click Show dismissed people.
3. Click your employee.
4. In the gray box at the top of the page, click Change [Employee's] rehire date. 
5. Select the new rehire date.
6. Select your employee's work location.
7. Select whether or not you'd like us to file a new hire report.
8. Click Rehire employee.

To convert a contractor to an employee, follow the steps in this article.