What is the timeframe within which compensation must be paid to a terminated employee?

The correct timeframe for paying compensation to a terminated employee is 2.5 months after severance. This period is aligned with regulatory requirements which stipulate that deferred compensation must be distributed within a certain timeframe following termination. Specifically, under Section 409A of the Internal Revenue Code, if an employee separates from service, any deferred compensation needs to be paid out within 2.5 months of that separation.

This policy helps ensure that employees receive their entitled compensation promptly after leaving an organization, which is crucial for their financial planning. Employers are obligated to follow this guideline to avoid potential penalties or compliance issues associated with delayed payments.

The other potential timeframes provided do not adhere to the regulatory requirements established for compensation payments following termination, highlighting the importance of understanding the correct timeline as it relates to plan compliance and employee rights.