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Dismiss an employee: Basic Information

When you dismiss an employee, there are understandably many implications for their payroll and benefits. Use this list to learn what happens when you dismiss an employee, including the timeline of notifications and important compliance implications to consider.

Part 1: 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 address to their personal one, the employee will be notified via email to their personal address indicating they need to create a new password with the new email.

*Note that 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.

Part 2: 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 do not 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 do not have any requirements in this regard.

    • Check out this article for dismissal paycheck requirements (by state).

  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 will not have a check box available during the dismissal payroll run.

Part 3: 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 are quitting. It is 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 4: 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 are backdating a dismissal, please see Part 5: 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 & 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 their 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 will not be available.

  3. Payroll, Health Insurance, & 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 will 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 be sending communications to your employee.

Part 5: Backdated dismissals

While we hope that you will 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 at [email protected] 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 is 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 6: 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 does not 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.

  • Concierge customers: 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.


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