How Long Can Non-Compliant Pay Stubs Haunt You?

by Holden Law Group

These days, it’s rare to meet an employer that has not received a personnel or payroll records request from a former employee.  Recently, I was reviewing a client’s wage statements and it got me thinking about California Labor Code 226 and how long a plaintiff has to bring a claim for non-compliant paystubs.

As you may already know, California Labor Code Section 226(e) outlines nine specific items which must be included on a paystub:

  • Gross wages earned.
  • Total hours worked by the employee (with limited exemptions).
  • The number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis.
  • All deductions made.
  • Net wages earned.
  • The inclusive dates of the pay period.
  • The name of the employee and last four digits of the employee’s social security number or an employee identification number.
  • The name and address of the legal entity that is the employer.
  • All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.

In addition, employers must list the amount of sick pay available to the employee on the pay statement.

Further, employers utilizing any form of piece work (production-based) compensation system have been further obligated since January 1, 2016 to pay affected workers separately for rest and recovery time. Labor Code 226.2(a)(2)(A) requires such employers to list three additional items on each pay stub:

  • Total hours of compensable rest and recovery periods in the applicable pay period;
  • Rate of compensation for such periods; and
  • Gross wages paid for those rest and recovery periods during that pay period.

Last, under Labor Code 226.2(a)(2)(B), unless a piece work-paying employer includes an hourly minimum wage base rate in its compensation system, that employer will also have to list yet three more items on each pay stub for affected workers:

  • Total hours of other compensable nonproductive time in the applicable pay period;
  • Rate of compensation for such time; and
  • Gross wages paid for that time during the pay period.

Although these requirements appear fairly straight forward, technical violations of this law happen.  And they happen often.  How long though, will a non-compliant pay stub haunt you?  Well, you ask most attorneys and they will say 3 years.  While 3 years is one answer, there is another answer that may surprise you.

Cal. Lab. Code § 226(e)(1) provides that “[a]n employee … suffering injury [under § 226(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).”

As noted in the plain language of the statute, Cal. Lab. Code § 226 provides for both “actual damages” and “penalties.” Thus, an inaccurate wage statement claim is subject to a three-year limitations period to the extent it seeks damages and a one-year limitations period to the extent it seeks penalties.

What?  How can a single claim under Cal. Lab. Code § 226 be subject to two different limitation periods based on the nature of relief sought?  Well, it’s true. Welcome to California.

In California, a three-year limitations period applies to “[a]n action upon a liability created by statute, other than a penalty or forfeiture.” Cal. Code Civ. Proc. § 338.   However, there is also a one-year limitations period for “an action upon a statute for a penalty, if the action is given to an individual …, except if the statute imposing it prescribes a different limitation.” Cal. Code Civ. Proc. § 340(a).

What does this mean for employers?  This means that if a plaintiff seeks only penalties for the alleged violations of Cal. Lab. Code § 226(a), the one-year limitations period applies. However, if a plaintiff seeks damages, the three-year limitations period applies.

So, for example, if an inaccurate wage statement claim brought under Cal. Labor Code Section 226(a) accrued in January, 2017 and the action was not filed until March, 2019, the Section 226 claim is timely as to the recovery of damages, but untimely as to the recovery of penalties.

How do I use this information?  Well, next time you receive a payroll records request, pay close attention to the date that the individual left your employment and what remedies are being requested.  You never know, you may find yourself with a defense that will help you avoid the payment of penalties under Section 226 for inaccurate or non-compliant pay stubs.