How can a minor pay stub error or omission cost an employer hundreds of thousands of dollars in a wage and hour lawsuit? It is easy in the State of California. We have Labor Code section 226 which defines nine particularized items that must be set forth on a wage statement and plenty of plaintiff’s attorneys eager to find technical errors. Here are the nine required items:
- Gross wages
- Total hours worked
- Piece rate/flat rate paid in addition to the hourly minimum wage rate
- All deductions
- Net wages
- Inclusive dates of the pay period
- Employee name and ID number or only the last 4 digits of the social security number
- Name and address of the legal entity that is the employer
- All applicable hourly rates (such as overtime rate, standby rate, etc.)
So, how do you get to hundreds of thousands of dollars in liability? In California, an employee who is “deemed injured” by a pay stub violation is entitled to statutory penalties in the amount of $50 for the first violation (per employee) and $100 for each subsequent violation, with a maximum of $4,000 per employee. To add insult to injury, there is an additional civil penalty that can be awarded at double the foregoing amounts, with no established maximum. Other penalties may also apply depending on the underlying wage and hour violation committed. Remember, if you have not calculated the pay of your employees accurately, then the information you report on the wage statements is necessarily incorrect and subjects you to pay stub liability.
These pay stub lawsuits are “low-hanging fruit” for class action attorneys because it is a matter of simple math to prosecute the case. The attorney finds a wage statement error, multiplies it by the number of employees affected, multiples that times the number of pay periods of violation and then multiples it by the various penalty rates. The simplicity of proof makes these lawsuits very attractive to attorneys.
Think your payroll company has this well in hand? Think again. Most payroll companies simply take the information that the employers provide and import it into their standard format. Payroll companies are a necessity for many employers, large and small, so it is important to know what you are receiving as part of your payroll service and to take steps to ensure your business is covered. Some things to keep in mind concerning your payroll company are:
- Payroll companies are not always skilled in the area of wage and hour compliance so even their standard pay stub format may be missing something as basic as a column showing the “total” hours worked.
- Payroll companies generally accept payroll information from employers without any evaluation of the accuracy of the information or the employer’s compliance with underlying wage and hour law.
- Payroll companies typically utilize extensive written contacts that relieve them of all liability and may even require the employer to defend and indemnify the payroll company should it be named as a party to any wage and hour litigation.
- Payroll companies may balk at providing copies of the wage statements that employees are entitled to receive by way of a request to the employer. Some payroll companies may charge an “extra” amount if you want ready access to the wage statements.
You may assume your company and/or your payroll company are in full compliance, but we urge you to conduct a self-audit by reviewing the sample pay stub and notes linked here. Comparing the sample wage statement with your form can expose whether any red flags appear from which you might need additional scrutiny of your payroll process. Your self-audit should encompass not only the format and content of the pay stub but the underlying information to determine whether you are paying your employees correctly taking into consideration all of the intricacies that go into calculations for overtime, piece rate, minimum wage, standby time, call-back and reporting time, etc. When your self-audit or an employee complaint raises the possibility of wage statement violations or underlying wage and hour violations, you should take prompt action to stop any further liability from accruing and consider a strategic plan to implement changes that will reduce exposure. As always, if you have questions or concerns, we are here to support you.