Are You Paying Enough Attention to Your Paystubs?

So many employers in California recognize that California labor laws are complicated, and understand their obligation to pay their employees timely and accurately, and to accompany such payment with a paystub.  Rather than process payroll internally, they decide to go the “safe route” and utilize a professional payroll service, such as Paychex or ADP.  Upon doing so, they have peace of mind, assuming that a professional payroll service will certainly issue accurate and lawful paystubs to their employees, right? Wrong.

As California has very stringent requirements for paystubs, going above and beyond the requirements of other states, oftentimes payroll services do not know the extent of information required on California paystubs, or if they do, they do not care.  Many employers not only do not know the extent of information required, but also do not realize that the professional payroll service they have retained is just as oblivious.  Employers tend to learn this lesson the hard way, by responding to a request for payroll records under Labor Code § 226, and thereafter receiving a demand for damages and penalties as a consequence of their unintentional mistakes.  Unfortunately, California follows a system of strict liability with respect to wage and hour and paystub violations – there is no intent requirement, and no “innocent mistake defense.” Penalties for a paystub violation can be up to $4,000.00, calculated as $50.00 for the initial pay period in which a violation occurs, and $100.00 per employee for each subsequent pay period in which a violation occurs.

Unfortunately, payroll services have no statutory obligation to ensure that the paystubs they issue for a business include all of the categories of information that are required under state law.  Payroll services tend to also include a provision in their contracts precluding them from contractual liability to the employer.  Instead, employers have the burden of informing their payroll service provider of which categories of information should be included on each paystub.  Consequently, employers must be proactive.  New business owners should ensure they are up-to-date on the current requirements for paystubs, and inform their payroll service provider of the requirements at the outset of services.  Existing business owners should review their paystubs to confirm that all required categories of information are included, and, if necessary, instruct their payroll service provider to make changes.

To assist employers with this task, we have summarized the 10 categories of information that are currently required to be included on paystubs under Labor Code Sections 226 and 246:

1. Gross wages earned;
2. Total hours worked by the employee (there are several statutory exemptions for this category, such as when an employee is an exempt executive);
3. Number of piece-rate units earned and any applicable piece rate (if the employee is paid on a piece-rate basis);
4. All deductions, separately itemized (deductions made on written orders of the employee may be aggregated as one item);
5. Net wages earned;
6. Inclusive dates of the pay period for which the employee is paid;
7. Employee’s name and the last four (4) digits of the employee’s social security number (or an employee identification number instead of the social security number, if applicable);
8. Name and address of the legal entity that is the employer (and for farm labor contractors, the name and address of the legal entity that secured the employer’s services);
9. All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate (and, if a temporary services employer, the rate of pay and total hours worked for each temporary services assignment); and
10. Amount of paid sick leave (or paid time off in lieu of sick leave) available to the employee (this category may also be provided on a separate written notice, but must be delivered to the employee along with his/her paycheck).

The bottom line is that paystub requirements in California are more complicated than most employers would expect, and the penalty for violating the pertinent statutes is quite steep.  If you have not examined your business’s paystubs lately, take a close look, and correct any violations before a disgruntled employee or former employee does so for you.