Summary
Content
Admins with the right permissions can dismiss (terminate) or rehire employees directly in Gusto. If you do not see the option to dismiss, contact the primary admin on your account.
Dismissing an employee affects payroll, benefits, and compliance. This article explains what happens, what notifications are sent, and what laws may apply.
If you need to:
- Run a dismissal payroll: See our dismissal payroll article.
- Cancel your Gusto account if no employees remain: See our cancel your account article.
- Dismiss or rehire a contractor: See our dismiss or rehire contractors article.
Click the dropdowns to learn more.
If an employee is the last person on a pay schedule, move them to another active schedule before dismissal. Once dismissed, Gusto automatically removes unused pay schedules.
If you dismiss the last person on a pay schedule before moving them to another active pay schedule, that pay schedule cannot be deleted.
- Gusto notifies insurance carriers when you dismiss an employee. Coverage usually ends at the end of the month, but timing depends on the policy, contract, and carrier.
- Employee dismissals can take up to two weeks to get confirmation from the carrier.
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- We send the employee a COBRA Election Notice 3 days after dismissal, letting them know about their continuation options. If they were the last employee on your plan, the carrier may cancel the policy, including COBRA coverage.
- Gusto keeps payroll history for taxes and W-2s, but the employee is removed from future payrolls.
- Dismissed employees’ time tracking hours move to an off-cycle pay period labeled “off-cycle.” You can find this on your time tracking dashboard or in the dropdown above your team's timesheets.
- Admins and managers can still review, edit, and approve these hours.
- Admins can sync the dismissed workers' timesheets to a dismissal payroll by selecting Sync hours to payroll and Sync hours and go to payroll.
- Managers can review hours, but will not see anything about the dismissal.
- Employees can view and confirm their timesheet until their last day. After their last day passes, Gusto shows any changes to their timesheet.
Encourage employees to use a personal email* for their Gusto account. This ensures lifetime access to paystubs and W-2s after dismissal.
If they use a work email, ask them to update it before their last day.
*Gusto may contact dismissed employees about COBRA or state continuation coverage if they lose company-sponsored health insurance. Gusto may also contact them if other required notices or benefit issues come up. To support this, Gusto may share an employee’s email address with trusted third parties who help send COBRA, state continuation, or other benefit information. You can review Gusto’s Terms of Service to learn more about when data may be shared.
Health insurance carriers may also send employees a notice when their coverage ends. This notice confirms the coverage start and end dates. If employees contact their carrier directly and the carrier has a processed future termination date on file, the employee has the right to get that information.
If employees have life insurance through Gusto, they will get an email explaining their options to continue or port their life insurance coverage.
Some states require you to pay out unused PTO when an employee is dismissed. Others only require you to follow your written PTO policy. Some states have no requirements.
In dismissal payrolls, you can choose to pay out any remaining hours.
Some states require faster final payments after dismissal. Rules may differ for quits vs. terminations. If you do not pay the departing employees in within the time limit specified by the law, you could face penalties.
Check your state's Department of Labor (or equivalent) to confirm its regulations regarding final paycheck timing and method.
By default, dismissal payrolls use a check payment (company-issued). You can switch to direct deposit after confirming you've reviewed your state’s final paycheck laws. To do this, click the icon next to the payment method and change it to Direct deposit.
These expectations apply if your employee’s dismissal date is today or in the future. If you need to backdate a dismissal, see the "Backdated dismissals" section below.
- If you only use payroll
- No dismissal email is sent.
- If you use payroll + health insurance (managed by Gusto)
- Employees get a notice about COBRA or state continuation options*. Emails are sent 3 business days after dismissal.
- If COBRA is managed by BASIC, the employee receives a mailed notice instead.
- *Health insurance carriers may also send employees a notice when their coverage ends. This notice confirms the coverage start and end dates. If employees contact their carrier directly and the carrier has a processed future termination date on file, the employee has the right to get that information.
- If you use payroll + health + life insurance (managed by Gusto)
- In addition to all notifications above that apply, employees also get a life insurance continuation email one day after coverage ends.
- AP Intego, Guideline, commuter benefits, FSA, and HSA
- These services do not send automatic notifications when you dismiss an employee. If an employee starts a 401(k) rollover with Guideline, Guideline will contact them directly.
- Expense submissions
- If an employee with a scheduled dismissal tries to submit an expense, they'll see this message: "Employee expense could not be saved: Offboarding employees cannot create new expenses. Please contact your manager or payroll admin to process any new expenses."
You can enter a dismissal date in the past in Gusto. If you do not see the option, message us from the
in your account.
Employees get the same notification listed in the "Notifications to employees" section, except COBRA notices are sent one business day after you enter the backdated dismissal.
Note: Insurance carriers may charge fees for backdated changes. Notifying carriers in advance about dismissals, enrollments, and qualifying life events is the industry standard, and it ensures that coverage begins and ends correctly.
Some states require separation notices or service letters that detail the reason for the separation. These letters help demonstrate that the reason for the dismissal was not discriminatory.
Gusto does not provide or send separation notices or service letters. Check your state labor department for details.
Premium and Plus customers with the Priority support add-on can contact Mineral HR Experts to get help.
Garnishments
If the employee has a garnishment, you must notify the collecting agency. Some states require extra forms. Learn more in our dismissal payroll article.
In the unfortunate event that an employee passes away:
- You can dismiss them in Gusto.
- Work with an HR professional (like Mineral HR) or legal counsel to handle their final pay.
- If benefits are involved, message us from the
in your account. - Gusto will still file their W-2 if you remain a customer (more info from the IRS).
Important: Dismissals cannot be undone. Make sure you want to end the employee’s employment and remove them from future payrolls before moving forward. Their info will remain in Gusto for records, taxes, and possible rehiring.
- If the employee is going on leave of absence, skip them in payroll instead of dismissing.
- The steps below apply to both employees who resign and employees who are terminated.
Deductions on the final payroll
- Externally managed benefits: Apply automatically.
- Gusto-managed benefits: One full pay period of deductions will always apply.
- ⚠️ Gusto cannot prorate deductions after. Example: If an employee is dismissed on January 15 and benefits continue through February 1, we will not capture the remaining deductions the employee owes for the second half of the month.
- To apply additional deductions, process the final pay as an off-cycle payroll, and choose to apply them.
- Severance pay: If marked as severance, 401(k) deductions (externally managed or integrated) will not apply.
Steps to dismiss an employee
Employees who were paid through Gusto can be dismissed but not fully deleted. Gusto must be compliant in maintaining its payment records.
- Sign in to Gusto.
- In the left menu, click People.
- Click the employee’s name, not the checkbox.
- Under Information, click Work.
- Find the Work section and click Dismiss.
- Enter the employee’s last day.
- Indicate if the employee chose to leave. We will not report this anywhere, but we’ll save it for your records.
- Keeping track of reasons that employees leave the company can be very important later on.
- For involuntary dismissals, employees can file for unemployment, COBRA/continuation of health insurance, and/or assert unlawful termination.
- (Optional) Select a reason for dismissal.
- (Optional) Enter the employee’s personal email address so they can sign in later for W-2s and paystubs.
- (Optional) Add dismissal notes. Only admins with the right permissions will see these notes.
- Click Save & continue.
- Review the dismissal timeline and expectations.
- Click Dismiss employee.
- Complete the offboarding checklist (now or later in the Offboarding tab).
What to expect:
- We will not send any notifications to your employee about the dismissal. However, employees with an upcoming dismissal date who submit an expense will see this message: "Employee expense could not be saved: Offboarding employees cannot create new expenses. Please contact your manager or payroll admin to process any new expenses."
- Your employee will know they’ve been dismissed if they sign into their Gusto account after their last day.
Special cases:
- To dismiss an employee who never started or was entered twice by mistake, message us from the
in your account. - If you need to remove a dismissal for any other reason, message us from the
in your account.
When an employee is dismissed, every state has its own rules about:
- When you must issue a final paycheck.
- Whether unused PTO must be paid.
Important: In some states, late payments can lead to penalties, damages, or even criminal consequences. Always review your state’s Department of Labor website.
If you have specific questions about a termination, work with an employment attorney.
See the table in this article for details by state.
Table last revised January 15, 2025.
State |
Dismissal paycheck deadline(s) |
Requirements 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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What a furlough means
Furlough is when you place an employee on a temporary, unpaid leave due to a downturn in business or off-season, but you want them to come back in the future. This is different than an employee requesting a leave of absence for personal or medical reasons.
Furlough an employee in Gusto
Furlough and leaves of absence are handled the same way through Gusto. Do not dismiss the employee. Instead, skip them on payroll until they come back to work.
Furloughed employees who have benefits with Gusto
Placing an employee on furlough does not end their benefits. However, carriers’ rules differ—to stay compliant, 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 comes back to work and is paid again through payroll, we’ll apply catch-up deductions to cover any missed benefits contributions. When an employee is on furlough or leave, you need to pay the entire health insurance premium to the carrier. This means that you also need to cover the employee’s part of the premium until they come back to work.
Dismiss or lay off an employee
If an employee will not be coming back to work, you can dismiss them.
When you can make changes
You can change an employee’s dismissal details up until the original dismissal date passes.
- After the dismissal date, you can still edit some details—but only if the employee has not been paid since dismissal.
- If you cannot change the date or details yourself, message us from the
in your account.
Change dismissal details or cancel the dismissal
- Sign in to Gusto.
- In the left menu, click People.
- Click the employee’s name, not the checkbox.
- Under Information, click Work.
- Find the Work section.
- Admins with the right permissions can click Cancel to remove the planned dismissal.
- In the gray Pending box, click Edit and update the information you need to change.
- Click Save.
When you dismiss an employee, you can choose to pay severance in the dismissal payroll (find the dismissal payroll in the Offboarding tab).
If you already ran the dismissal payroll but still need to pay severance—or another type of earning—run an off-cycle payroll.
Pay a dismissed employee (after you've run the dismissal payroll)
You must have the right admin permissions to run this payroll.
- Sign in to Gusto.
- In the left menu, click People.
- Click the Dismissed tab.
- Click the employee’s name.
- Under Information, click Pay.
- Scroll to the Recent paystubs section.
- Click Run off-cycle payroll.
- Click + Other Earnings.
- Enter the work period.
- Enter the payment date.
- Choose how deductions and contributions should be handled.
- Review or edit tax withholding rates.
- In the Hours and additional earnings section, click + Other Earnings.
- Scroll down and enter the severance amount in the Severance field. This option only shows if the employee has been dismissed.
- Severance pay will not count toward an employee’s 401(k) if the plan is managed outside of Gusto or through an integrated provider.
- (Optional) Click Add Personal Note to include a message about severance on the paystub.
- Click Save & Continue.
- Click Submit Payroll.
Admins with the right permissions can rehire dismissed employees in Gusto. If you do not see the rehire option, ask your company’s primary admin to help.
Important reminders
- Gusto does not require a new I-9 for rehired employees.
- The rehire date will replace the employee’s original hire date.
- Gusto does not support sending new hire or offer letters to rehired employees.
- If rehired in the same year, the employee will receive one W-2 for all wages.
- Rehires cannot be canceled. If you rehire by mistake, you’ll need to dismiss the employee again.
- You cannot rehire someone as a contractor. Instead, add them as a contractor.
- To convert a contractor into an employee, follow the steps in this article.
Rehire an employee
- Sign in to Gusto.
- In the left menu, click People.
- Click the Dismissed tab.
- Click the employee’s name, not the checkbox.
- Under Information, click Work.
- Find the Work section, and under Dismissal details, click + Rehire.
- If the employee worked at your company before you joined Gusto, click Get started to enter their info.
- Enter the rehire date.
- Choose the employee’s employment status from the dropdown.
- Select the employee’s work location.
- Choose whether you want Gusto to file a new hire report.
- Click Rehire Employee.
What happens after a rehire
The employee can sign in to their existing Gusto account (using the personal email in their profile) to confirm or update their information.
On the rehire date, Gusto will mark them as active and add them back to payroll.
If you rehire someone who left before your company joined Gusto, you’ll need to enter a few extra details during rehire.
Change a rehire date
If you need to change the rehire date, message us from the
in your account.
*It’s our policy to guarantee lifetime access of payroll information to all users, subject to compliance with our Terms of Service.
