Well-intended employers often lament the various gotchas that await them down the dark and winding road that is the California Labor Code. Perhaps no turn in the road is more treacherous than the one at Wage Statement Junction. Here one crosses at extreme peril, for the California Legislature, in Labor Code section 226, has planted legal land mines that can blow up at the slightest provocation.
A Common Sense Question With a Less-Than-Intuitive Answer: “Can’t I avoid hazards if I just pay them the right amounts and on time?” Sadly, no, there’s much more to it. Labor Code section 226(a) lays out a long list of other requirements, some more sensible than others.
Not so Simple. Timely paychecks must be accompanied by a “simple” wage statement at least semi-monthly, and the wage statement must include nine distinct pieces of information for each employee:
- gross wages earned;
- total hours worked (with the exception of exempt salaried employees);
- the number of piece-rate units earned and any applicable piece rates if employee is paid on a piece rate basis;
- all deductions;
- net wages earned;
- the inclusive dates of the pay period;
- the employee name and either the last four digits of the social security number or an employee ID number;
- the name and address of the legal entity that is the employer; and
- all hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.
The Logical Questions In Response: “Nine? Do I really need to include each of these items on every employee’s pay stub twice a month?” To quote The Who, “You better, you better, you bet,” and better believe these rules apply to electronic pay stubs too. And while it’s true that some of these requirements—like listing net wages earned during the pay period—may seem like no-brainers, others are less intuitive. The employee should know how much she has earned. But an employee may argue that she can’t know whether her pay was right without knowing all of the types of deductions that get her from gross to net. Concerns like these give rise to the less-obvious categories of required wage statement information, and questions like, “What in tarnation is a piece-rate unit?” (FYI – in shorthand, it means pay for an identifiable task or item of work, but that’s for another article.)
For example, if an employee notices a mistake, but the employer doesn’t fix payroll mistakes where the employee works, the employee may claim inability to raise the concern with the appropriate authority. Likewise, the employee could claim inability to confirm the payment amount without having a wage statement that identifies corresponding covered work. While employers may like to think their employees would be capable of contacting payroll if there is any confusion, the Labor Code requires disclosure of this kind of information before it is ever requested.
Overkill? Yes, what was your first clue? But including the above-listed information, even if you assume employees already know it, avoids predatory claims for penalties equaling up to $4,000 per employee. As you can see, the potential dangers associated with even a technical violation has the capacity to add up quickly and invite lawsuits from the plaintiffs’ bar.
Aren’t there any exceptions for companies that make a mistake? No harm, no foul, right? Plaintiffs argue that the only exception to penalty liability for errors and mistakes is the codified exception for any “isolated and unintentional payroll error due to a clerical or inadvertent mistake.”
So what are employers to do to ensure that they do not get hit with Section 226 penalties? Quite simply, if you haven’t had your paystubs reviewed in the last year, it’s time. Employers should treat the above list as a checklist and review their pay stubs to make sure they contain all of the information required by Labor Code Section 226.
Employers that utilize a payroll service would be well advised to not simply rely upon that service provider to ensure compliance with Labor Code Section 226. Payroll companies often recite to their customers that the payroll company is not providing legal advice. The responsibility for any missing element in a wage statement is likely to remain with the employer. So employers are well advised to independently review their pay stubs to ensure they meet the requirements of Section 226, including all of those listed above, and to ensure that the payroll service has all the information it needs to produce compliant pay stubs.
Questions? Contact a California Workplace Solutions blog author if you have any questions or concerns about Labor Code Section 226 compliance.
Edited by Chelsea Mesa