California employers generally understand that they must provide employees with an accurate wage statement each pay period. They are often surprised to learn, however, that their company can face statutory penalties of up to $4,000 per employee if their payroll services provider fails to include specific information on those wage statements. Fortunately, these penalties can be avoided through a brief internal audit of your company’s payroll practices.
Employers are required under Labor Code section 226 to provide each employee with an accurate itemized wage statement either semi-monthly or at the time of each payment of wages. Section 226 requires nine pieces of specific information be included on each employee’s wage statement:
- Gross wages earned
- Total hours worked
- Piece-rate units and the applicable rate
- Any deductions from wages (e.g. health insurance or retirement contributions)
- Net wages earned
- Inclusive dates of the pay period
- Legal name and address of the entity of the employer
- Name of the employee and last four digits of the employee’s Social Security Number
- All applicable hourly rates in effect during the pay period and the number of hours worked at each rate (e.g. straight time, overtime, double time)
Employers are prudent to also include notice of the amount of paid sick leave or paid time off available to the employee on the wage statement to meet their obligations under Labor Code section 245.5. Employers that provide “unlimited” paid time off policies should indicate “unlimited” on those statements under this section.
Despite the statute’s plain language, which authorizes an employee to recover penalties only for a “knowing and intentional failure,” there are a troubling number of cases that impose liability for inadvertent errors. Noncompliance with these provisions subjects the employer to statutory penalties under Section 226 of $50 per employee for the first violation and $100 per employee for subsequent violations, up to an aggregate of $4,000 per employee. Attorney’s fees and costs are also available. Employees often seek additional penalties under California’s Private Attorneys General Act (“PAGA”), which can be substantial, as the penalties are calculated per pay period, per employee, going back one full year. Fortunately, employers may cure certain violations of Labor Code section 226 by issuing compliant wage statements within 33 days pursuant to the statute’s procedural requirements. In this regard, it is important for employers to promptly contact counsel when faced with a letter for PAGA claims.
Because Section 226 penalties are often sought as part of a class or representative wage and hour action, an employer that inaccurately calculates and reports an employee’s paid sick leave hours or fails to include an employee’s Social Security Number may face significant liability under challenging precedent. As such, inaccuracies need to be recognized early and corrected. We recommend human resource professionals work with their legal counsel and payroll services provider to correct any deficiencies.