Business Owner Responsibilities after Terminating an Employee

If you have ever terminated an employee, you know the process is painful.  From managing the final meeting with the employee to wrapping up final paperwork, the process can be challenging and many times prevents business owners from pursuing terminating an employee, contractor or consultant. Regardless of terminating for performance or downsizing due to business need, as a business owner, you have specific responsibilities after the actual termination process to protect your company, your employees and your bottom line.  Below are steps to take once you have terminated an employee.

Employee Records Retention

Once an employee is gone, it may be easy to think about destroying all records but depending on the size of your company, you will need to retain specific documents for at least one year, and with other documents up to three years or more. For example, selection, hiring and employment records should be kept for at least one year. All I-9s must be retained for at least one year after termination. Under ADEA, business owners who employ over 20 employees must keep payroll information for up to three years post termination. Other records to consider including medical records, safety data, FMLA documentation, tax records, and credit report.

A good business practice is to annually review EEOC requirements and your state recording laws based on the size of your company and general requirements for all business owners. This annual review will help you determine your supporting processes and practices such as file management, documentation, communication and storage when terminating an employee.

Unemployment Insurance/Workmen’s Compensation

It is your responsibility as a business owner to know your state laws regarding “at will” employment policy, unemployment compensation and workmen’s’ compensation. State laws vary but in general, employees terminated for cause are not eligible for unemployment compensation. It is your legal obligation to notify terminated employees of their possible eligibility for unemployment insurance.

If you terminate an employee but expect him to return the workplace for a legitimate reason, acquire something in writing and signed by the employee acknowledging his/her understanding of the specific termination date. This acknowledgement in writing will ensure there is no question that the employment was over before he/she returns and protect you and your business should anything occurs during the return.

Continuation of Health Coverage

If your business has over 20 employees and administers a group health plan, you have the responsibility to offer terminated employees, their spouses and dependents temporary continuation health coverage at a group rate. If the employee is terminated for “gross misconduct”, you may not be required to offer coverage. Contact your benefits administrator within 30 days of the employee’s termination date to determine if offering coverage is required.

Final Paycheck:

It is important to check your state employment laws for specifics on how to process the final paycheck. Specific conditions may apply in regards to the schedule of your accounting unit, location of delivery and time allowance for postmarking the paycheck. Each state has its own guidelines for possible deductions such as deductions for the amount of money the employee failed to return to the employer during his/her employment. State guidelines also include timeframes for auditing and adjusting the employee’s account.


Depending on the nature of your business, you will need to limit access to confidential information and access to network and technology. Contact your network administrator to confirm any network access to the employee has been removed. Remember to include business-related cloud access such as Dropbox or similar platforms. I f your hiring process includes a non-compete clause, consult your HR professional to begin the process of starting the obligations cited in the non-compete disclosure.


As a business owner, you may find yourself in a position to terminate an independent contractor or consultant relationship. Depending on your business, a terminated independent contractor may find cause to sue depending on the written agreement, particularly if the termination did allow for addressing default work or there are subcontractors involved. If there is a written agreement, review the termination provisions to insure you meet the provisions post termination, for example, pay, expenses, obtaining confidential company materials, etc.

Workplace Safety Concerns

Terminations are rarely on friendly terms and cause anxiety and pain for both the business owner and employee. Research indicates over 75% of workplace violence incidences occur during or after the termination process. As a business owner, it is important to consider the safety of your work environment, especially if you have documentation of a violent employee, contractor or consultant. If needed, consider having a threat assessment performed, pack and send the employee’s personal effects to the home address or consider security guards for a few days after the termination occurrence. In some cases, a Temporary Restraining Order may be of use.



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