Nashville Business Attorneys Blog

I recently had a business client call me with some questions about the final paycheck for an employee that he was terminating. These questions come up from time to time for our Tennessee business attorneys and every business that has employees in Tennessee should be familiar with Tennessee law in regard to handling final paychecks for employees who have either voluntarily quit or have been discharged.

Am I required to pay for unused vacation time when an employee quits or is discharged?

Tennessee wage regulations do not require that unused vacation pay or other compensatory time be paid to the employee in his or her final paycheck unless the company's policy or its labor agreement specifically requires payment of such compensation. Providing paid time off to employees is voluntary for employers and the employer may impose limitations and conditions on unused paid time off.

The company advanced funds to an employee and the employee has not repaid these funds. Can I deduct these funds from the employee's final paycheck?

Tennessee law provides that an employer may offset an employee's wages for an amount the employee owes the employer if the following conditions are met:

1. The employer agrees to advance the employee wages prior to the date the wages are due and owing, agrees to otherwise lend the employee money, or permits the employee to charge personal items on the business credit card issued to the employee; and


2. The employee has signed a written agreement prior to the employer advancing wages or lending money to the employee allowing the employer to offset the employee's wages for any amount the employee owes the employer, and the employer has in its possession at the time of the offset a copy of the signed agreement; and


3. The employer notifies the employee in writing fourteen (14) days prior to the payment of the wages that there is an amount the employee owes the employer and that the employee's wages may be offset if the amount is not paid prior to the payment of the wages, and that the employee may submit a sworn affidavit contesting the amount owed to the employer with a copy to the Tennessee Department of Labor and Workforce Development no later than seven (7) days after receiving the notification.

If these conditions have not been met, or if the employee submits a sworn affidavit contesting the amount owed the employer cannot offset the employee's wages for an amount the employee owes the employer. However, the employer may commence an appropriate civil action against the employee to recover the amount owed.