California employers are subject to stringent wage and hour laws that are not common in other states. Complying with wage statement requirements is particularly challenging because it is easy to overlook the many technicalities, which can result in costly penalties.
The following guidance provides a general overview of the wage statement requirements under California law and common errors to avoid. Employers with specific questions about whether their wage statements are compliant should consult experienced employment counsel.
Wage Statement Requirements under California Law
California Labor Code Section 226(a) specifies 9 items that must be included on each employee’s wage statement: (1) gross wages earned; (2) total hours worked, unless the employee is exempt from overtime and minimum wage federal or state laws; (3) the number of piece-rate units earns and the applicable piece-rate, if the employee is paid on a piece-rate basis; (4) all deductions; (5) net wages earned; (6) the beginning and end dates of the pay period; (7) the employee’s name and last 4 digits of the employee’s social security number (or other employee identification number); (8) the name and address of the legal entity that is the employer; and (9) the hourly rates in effect during the pay period and the number of hours worked at each rate.
Additionally, the Healthy Workplace Healthy Family Act of 2014 provides that the number of sick days an employee has available must also be included on each wage statement.
Wage statements must be provided to employees, in writing, at the time wages are paid either as a detachable part of the document paying the employee’s wages or in a separate document if the employee is paid by cash or personal check.
Wage statements must be provided to employees in writing and deductions recorded in ink or other indelible form. Since many employers pay their employees electronically, the California Department of Industrial Relations Division of Labor Standards (“DLSE”) has issued an opinion letter detailing how employers who issue electronic pay stubs may comply with the law. Although the DLSE opinion letter is not legally binding, it indicates the factors a court will likely consider when reviewing the legality of electronic wage statements. Essentially, employers must ensure that employees can easily access a hard copy of their wage statements at no cost to them.
Employers must maintain copies of wage statements for at least 3 years at the place of employment or a central location in California. Upon reasonable request, employers must provide current and former employees with the right to inspect or receive a copy of wage statements.
Cost of Non-Compliant Wage Statements
Employees who suffer an injury due to an employer’s knowing and intentional failure to provide compliant wage statements are entitled to the greater of actual damages or $50 for the initial pay period in which the violation occurs and $100 per employee for every violation in each subsequent pay period. While total penalties are capped at $4,000, a prevailing employee is also entitled to an award of costs and reasonable attorney’s fees, which significantly increases the amount an employer may be required to pay for non-compliant wage statements.
An employee is deemed to suffer an injury if an employer fails to provide a wage statement. Alternatively, an employee may demonstrate an injury if the wage statement does not contain all nine items detailed in Section 226(a) and the employee cannot promptly and easily determine the required information from the wage statement alone.
Common Errors to Avoid
In light of the significant cost of non-compliance with wage statement requirements, employers should avoid the following common errors:
- Failure to ensure that any third-party payroll service issues compliant wage statements. Employers who use a third-party payroll service should not assume that the vendor is well-versed in California law and the requirements for compliant wage statements.
- Failure to properly train Human Resources employees on wage statement requirements.
- Failure to put in place specific policies regarding wage statements so employees know where to direct questions if they believe information is missing or inaccurate. Employers who are well-informed of any issues are in a better position to promptly correct the problem.
- Failure to list the correct legal entity that is the employer. The case of Noori v. Countrywide Payroll & HR Solutions, Inc., illustrates the costly litigation that may ensue for failure to include the employer’s proper legal name on wage statements. The Court of Appeal allowed a former employee’s claim for failure to comply with Section 226(a) to move forward against an employer who listed an unregistered acronym of an out-of-state fictitious business name on wage statements.
- Failure to maintain accurate records of wage statements in an organized manner for easy access should a current or former employee request to inspect or receive a copy. Employers must ensure that the copies on file are the exact replica of the wage statement provided to the employee.
- Failure to list any of the required information such as total hours worked or the hourly rate in effect during the pay period and the number of hours worked at each rate in a clear manner so the employee may promptly and easily determine the necessary information.
- Failure to provide the required information in a separate wage statement rather than on the paycheck itself. Once the employee deposits the paycheck, he or she will no longer have access to the required information.
- Employers who operate in multiple states must ensure that wage statements issued to California employees satisfy the unique requirements of California law.
- Small employers may be particularly susceptible to non-compliant wage statements due to more informal payment policies (e.g. payment by personal check or cash) or a mistaken belief that they are exempt from the wage statement requirements due to their size.