Seyfarth Synopsis: With the widespread use of direct deposit, the thought of an employee regularly reviewing wage statements may seem inconceivable. Still, employers must ensure that their wage statements strictly comply with California law, as even trivial, inadvertent failures to do so can lead to heavy penalties. We highlight here the information to include on wage statements while pointing out some of the legal landmines trod upon by unwary employers.
Labor Code Section 226(a) Is Pain. Anyone Who Says Differently Is Selling Something.
Much like The Princess Bride, wage statements remain incredibly relevant. Section 226(a) forces employers to report nine items of information on each itemized statement that accompanies a payment of wages:
- gross wages earned by the employee,
- total hours worked by the employee,
- all applicable hourly rates during the pay period,
- all deductions taken from the employee's wages,
- the net wages the employee earned,
- the pay period that the wage statement reflects, including the start and end date,
- the employee's name and ID number (which can be the last four digits of the Social Security number (SSN)),
- the name and address of the legal employer, and
- if the employee earns a piece rate, then the number of piece-rate units earned and the applicable piece rate.
(Note that employers must also report available paid sick leave, either on the wage statement or on another document issued at the time of each wage payment.)
Avoiding the Fire Swamp: Wage Statement Line Mines to Avoid
- If you use a payroll service to prepare the itemized wage statement, can you just "set it and forget it"? No, you can't. Many excellent payroll services do get it just right. Meanwhile, other companies, operating nationally, have not always heeded each California-specific requirement. And they do not feel it's their responsibility; it's yours. They do not offer legal advice or indemnification to prevent and correct wage-statement mistakes. If you are the typical California employer, you are on your own to ensure that your wage statements are sufficiently "Cal-peculiar."
- If you create in-house wage statements, can you rely on your IT department to capture all the right payroll information in the format that HR has designed? No, you can't. Many companies have lamented the discovery that the perfect wage statement designed by the legal or HR department did not emerge quite as envisioned once IT completed all the necessary programming. In the world of wage statements, for every ugly duckling turning into a swan there is a swan turning into an ugly duckling.
- Many well-regarded employers—national behemoths and local start-ups alike—have tripped over innocent, often trivial wage-statement mistakes to fall into a pit of despair, where they've found themselves inundated by millions of dollars in penalties that bear little or no relation to any actual employee harm.
- Among the alleged hyper-technical violations causing employers
to spend heavily to defend themselves—and sometimes causing
them to incur huge penalties—have been these:
- Neglecting to total all the hours worked, even though the wage statement lists all the various types of hours individually.
- Accidentally showing net wages as "zero" where an employee gets direct deposit.
- Leaving off either the start or end date of the pay period.
- Not showing the number of hours worked at each applicable rate.
- Recording an incomplete employer name ("Summit" instead of "Summit Logistics, Inc.").
- Recording an incomplete employer address.
- Failing to provide an employee ID number, or reporting a full nine-digit SSN instead of a four-digit SSN.
- And remember to keep a copy of your wage statements (or to have the capability to recreate what the employees have received).
Reaching the Cliffs of Insanity: How Recent Case Law Intensifies the Impact of Section 226
By now, you surely ask, "Can it possibly get any worse than that?" Yes, it can. It has been bad enough, of course, that hyper-technical failures to show an item required by Section 226(a) could create large liability unrelated to any real harm. But, until recently, employers at least had the defense that no penalty was available absent a "knowing and intentional" violation, because that was what a plaintiff had to prove to get penalties ($50 or $100 per employee per pay period) under Section 226(e).
But now, if a recent Court of Appeal decision stands, that defense has been stripped away. Lopez v. Friant & Associates, LLC held that an employer whose wage statement failed to record an employee ID number could be subject to penalties under California's Private Attorneys General Act (PAGA), even though the mistake was inadvertent and promptly corrected, and even though the employee admittedly suffered no injury by his employer reminding him each pay period what the last four digits of his SSN are. Lopez permitted the employee to sue for PAGA penalties without needing to prove the "injury" and "knowing and intentional" elements of a Section 226(e) claim. In short, Lopez is about as appealing as a Rodent Of Unusual Size (R.O.U.S.). See our detailed client alert on Lopez here.
Workplace Solutions: What Would Miracle Max Do
Though the exact impact of Lopez is unclear at this point (Lopez did not decide whether the extra PAGA penalty would be $250 per employee, under Section 226.3, or $100 per employee per pay period, under Section 2699(f)), Lopez rings the alarm that employers must proactively ensure that their itemized wage statements strictly comply with Section 226(a), lest they be the next to fall in the pit of despair. When is the last time you did your self-audit? Don't hesitate to reach out to Seyfarth to help you ensure your wage statements are compliant.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.