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California’s Itemized Wage Statement Requirement

Employers in California are required to include an itemized wage statement (“pay stub”) with each paycheck provided to an employee.  Some employers create pay stubs in-house while others rely on payroll companies to generate the employer’s pay stubs.  Regardless of who creates the pay stubs, employers must be aware that California law identifies specific wage related information that must be provided to employees.  Unfortunately, the failure to know exactly what California law requires be included on a pay stub can subject an employer to a variety of penalties and lead to costly litigation.

California Labor Code section 226  is the main statute addressing an employer’s obligation to provide pay stubs.  As of 2013, Section 226 has been amended in a number of ways to further clarify the obligations of employers as well as identify situations in which employees can recover damages or a penalty for violations of Section 226′s requirements.  It is believed that these changes will lead to an increase in lawsuits filed by attorneys representing current and/or former employees in which recovery of penalties (and attorneys’ fees) are sought not only on behalf of the named plaintiff(s), but also on behalf of all similarly situated individuals employed by the employer.  Unfortunately, by using California’s Private Attorneys General Act of 2004 (“PAGA”)  , such cases can proceed without having to satisfy the requirements of a class action lawsuit thus making it much easier for plaintiffs’ attorneys to pursue claims for alleged violations of Section 226.  Accordingly, employers are advised to know exactly what Section 226 requires and make sure they are providing compliant pay stubs with each paycheck issued.

Section 226(a) states the specific information that must be included on a paystub. At the time of each payment of wages, the employee must be provided a detachable part of the check or a separate statement that accurately itemizes the following:

  1. gross wages earned,
  2. total hours worked by the employee (unless the employee is exempt),
  3. the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis,
  4. all deductions,
  5. net wages earned,
  6. the inclusive dates of the period for which the employee is paid,
  7. 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,
  8. the name and address of the legal entity that is the employer and, if the employer is a farm labor contractor, as defined in subdivision (b) of Section 1682, the name and address of the legal entity that secured the services of the employer, and
  9. all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.  Beginning July 1, 2013, temporary services employer must show the rate of pay and the total hours worked for each temporary services assignment.

The deductions made from payment of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement and the record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.”

If an employer fails to provide a proper pay stub, Section 226 allows for the affected employee to recover damages, including costs and attorneys’ fees.  In the absence of actual damages, the employee can recover a penalty based on the number of pay periods during which a proper pay stub was not provided.  Specifically, Section 226(e)(1) states as follows: “An employee suffering injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a) is entitled to recover the greater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of four thousand dollars ($4,000), and is entitled to an award of costs and reasonable attorney’s fees.”  (This penalty is in addition to other penalties potentially available to the employee as discussed in other sections of the California Labor Code.)

Furthermore, effective January 1st of this year, the statutory amendments have modified Section 226(e) to clarify exactly what an employee needs show to prove that he/she has suffered an “injury” so as to entitle him/her to recover damages or the penalty discussed above.  Specifically, newly added Section 226(e)(2) makes it clear that if a wage statement fails to correctly state any of the information identified in Section 226(a)(1) through (9), the employee will be deemed to have suffered an “injury.”  Accordingly, an employee has to show nothing more than an incorrect or non-compliant pay stub in order to be entitled to recover damages or the penalty, along with all costs and reasonable attorney’s fees incurred.  With respect to the “knowing and intentional failure” requirement discussed in Section 226(e)(1), newly added Section 226(e)(3) explains that an “isolated and unintentional payroll error due to a clerical or inadvertent mistake,” will not be enough to constitute a violation of Section 226.  However, exactly how the courts will interpret the words “isolated, “unintentional” or “inadvertent” remains to be seen.

Litigation regarding alleged violations of Section 226 is not new.  However, in the past, employers have been able to defend against such actions by arguing that the plaintiffs cannot show that they suffered any actual “injury” as required under Section 226(e)(1).  Unfortunately, the new Section 226(e)(2) effectively eliminates an employer’s ability to rely on such a defense as it is now clear that simply receiving a non-compliant pay stub constitutes an “injury.”  One other important point to note is that not only have employers been sued for failing to include all of the required information on their pay stubs, but they have also been sued when the information on the pay stub was inaccurate or incomplete.  As indicated above, Section 226(a) requires that the information on the pay stub be “accurate.”  Accordingly, in situations where employees have filed a civil action in which they claim they were not paid for all hours worked, denied overtime pay, etc., they have also alleged a violation of Section 226(a) under the theory that the pay stubs they did receive were improper as they did not show the total number of hours actually worked or gross wages actually earned during the applicable pay periods.  While it is unclear exactly how a given court would view such an argument, the fact that such claims are being made only serves to highlight the importance of making sure fully compliant pay stubs are provided with each paycheck.

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