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Violating California's Paycheck Stub Laws Can Lead To Large Civil Penalties

 
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Violating California's Paycheck Stub Laws Can Lead To Large Civil Penalties

Prepared By: Melissa C. Marsh, Los Angeles Employment Attorney
Written: May 2012
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California's Paycheck Stub ( Wage Statement ) Laws Last Updated: February 2016

California law requires ten (10) specific pieces of information to be included on every payroll paystub or wage statement for each employee. See, California Labor Code §226. Failure to comply with the requirements of Labor Code §226, is not only a misdemeanor, but also carries a civil penalty of $50 for the first violation, and $100 per pay period for each subsequent violation up to a total of $4,000 per employee. Individually, the claim may not seem large, but if a plaintiff's attorney brings a PAGA claim on behalf of all prior employees, the civil penalties assessed can be very large.

Pursuant to of Labor Code §226:

"Every employer shall, semimonthly or at the time of each payment of wages, furnish each of his or her employees, either as a detachable part of the check, draft, or voucher paying the employee’s wages, or separately when wages are paid by personal check or cash, an accurate itemized statement electronically or in writing showing:
  1. Gross wages earned,
  2. Total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from overtime under Labor Code Section 515(a), or any applicable order of the Industrial Welfare Commission,
  3. All deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item,
  4. Net wages earned,
  5. The inclusive dates of the period for which the employee is paid,
  6. The name of the employee and the last four digits of his or her social security number, or an employee identification number other than a social security number,
  7. The name and address of the legal entity that is the employer,
  8. All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee;
  9. The amount of accrued paid sick leave; AND
  10. If applicable, the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis.

The above information must be presented to the employee with each wage payment in such a manner that the employee can “promptly and easily” discern the above information. If the employer offers its employees the ability to be paid by direct deposit, the employer must similarly offer the employee the option of receiving his or her wage statements in either paper or electronic form. That said, if an employee elects to receive a paper check, best practice is to also provide that employee a paper wage statement.

For employers offering electronic wage statements, the website storing the payroll information must be secure and incorporate proper safeguards to preserve all employees’ confidential information. According to the DLSE, “secure” means the website is protected by a firewall and that access is limited to those who provide a unique employee identification number and confidential personal identification number (PIN). In addition, electronic wage statements must be available to the employee at all times over the internet for print or download, and for each new payday immediately accessible no later than that payday. In addition, employers must still retain all wage statements (electronic or printed) and other pay records for a period of at least three years.

Employers diligent in attempting to comply with the law, often find themselves in trouble with overtime pay violations, which almost invariably lead to violation of California's pay stub / wage statement rules. Pursuant to Labor Code §204(b)(2), if an employee works more than 8 hours in a day, or 40 hours in a work-week, overtime wages are due and they must be properly recorded as overtime hours worked on the employee's pay stub. If the overtime hours are recorded as a correction on the itemized statement for the next regular pay period, the pay stub must include the dates of the pay period for which the correction is being made.

This can become extremely problematic for any employer who misclassifies an employee as exempt from overtime pay, or requires its employees to write down 40 hours when the employee in fact worked more hours. If an employee is entitled to overtime but is mistakenly classified as salary exempt, or if the employee writes down 40 hours when the employee actually worked 50 hours, the pay stub would be an inaccurate record and consequently would be in violation of Labor Code §226. An opinion letter from the California Department of Labor Standards and Enforcement written in response to questions regarding the application of Labor Code section 226 states: "[T]he obligation to list the total hours worked during the pay period can only be satisfied by listing the precise, actual number of hours worked." (Dept. of Industrial Relations, DLSE, Opinion Letter 2002.05.17, p. 3.) The two second most frequent mistakes made by California employers is: (1) failing to provide the correct full legal name of the employer and complete address of the employer on the employee's pay stub and alternatively (2) merely paying the employee with a regular check out of a personal account with absolutely no record at all.

If an employee brings a lawsuit for the violation(s), not only would the employee be entitled to up to $4,000 for the violation(s), but also attorneys' fees and costs. To make matters worse, the employee's attorney can bring the claim on behalf of all the employer's present and past employees which can make the potential damage award quite high. However, On October 2, 2015, Governor Jerry Brown signed into law Assembly Bill 1506 (AB 1506), codified in Labor Code Section 2699(d). Labor Code Section 2699(d) amends the California Private Attorneys General Act (PAGA) to provide California employers with a 33 Day Period to cure alleged violations of California Labor Code section 226(a)(6) and 226(a)(8), which require all California employers to specify on an employee’s wage statement: (i) the name and address of the “legal entity” that is the employer and (ii) the inclusive dates of the period for which the employee is being paid. The violation(s) is/are cured as soon as the employer provides the employee with a fully compliant, itemized wage statement for each pay period (up to three years back) prior to the date of the written notice. The employer must give written notice to the aggrieved employee by certified mail within the 33 Day time period that the alleged violation has been cured, including a description of actions taken. Once the employer takes these steps, the employee may not commence a civil action pursuant to section 2699 of PAGA.

California employers should review their payroll practices and wage statements as California case law states that partial or even substantial compliance is not a defense. See, Cicairos v. Summit Logistics, Inc., 133 Cal.App.4th 949 (2005), in which a California Court of Appeal stated that any deviance from the rules set forth is Labor Code §226 is sufficient to constitute a wage statement violation. In Cicairos, the Court found three separate violations: (1) unintelligible numbers regarding the hours worked; (2) identification of the employer as "Summit," when the employer's full name was "Summit Logistics, Inc." and (3) failure to include the employer's complete address on the pay stub. According to the court, "either taken separately or together, the wage statements and driver trip summaries do not list the defendant employer's name and address and thus are not adequate itemized wage statements."

© 2012 Melissa C. Marsh. All Rights Reserved.


 
 

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.