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Court of Appeal: OK to Mail Final Wage Statement and More

by D. Gregory Valenza | | May 31, 2018

The Court of Appeal made three significant rulings (mainly) concerning California’s Labor Code section 226, a law that imposes specific requirements for “wage statements” that accompany each pay check.

First, the Court held that when an employer pays “retro overtime” to account for bonuses earned over prior pay periods, it is sufficient to list the amount of overtime paid, without attributing it to specific hours and rates.

Second, the Court held that an employer who pays a terminating employee on the date of termination may mail the wage statement, or otherwise may “furnish” it to the employee by the end of the semi-monthly pay period.

Third (and not really related to section 226 per se), the Court decided that bonuses based on production are not covered by the California Supreme Court’s recent Dart v. Alvarado Container Corp., which addresses how to calculate overtime for flat-sum bonuses that are not based on production. 

A little background. The plaintiffs were non-exempt Wells Fargo employees.  Their compensation included production bonuses for work performed over different periods of time (monthly, quarterly, etc.)  When Wells Fargo calculated the bonuses after they were earned, Wells dutifully paid these non-exempt workers the retro overtime that was due on the value of the bonus.  Then, Wells included the retro overtime paid on the wage statement for the pay period in which Wells paid the overtime.  When employees’ employment ended, Wells sometimes would pay employees in person with a cashier’s check, which is equivalent to cash. However, on those occasions, Wells did not have the wage statement to give the employee in person. So, they mailed it.

Separate from the wage statement issue, the Court first addressed how overtime works for non-discretionary production bonuses. Here’s an excerpt.

In order to calculate overtime pay for an employee paid at an hourly rate, an employer must allocate the bonus over the period in which it was earned. * * * To explain this using an example, take a hypothetical employee wage statement for the period of January 7 to January 20, 2018.9 This hypothetical wage statement would include an hourly regular rate, the number of regular hours worked during the pay period of January 7 to January 20, the hourly overtime rate, and the number of overtime hours worked during the pay period of January 7 to January 20. The hypothetical employee earned a $360 monthly bonus for work performed during the previous month of December, from December 1 to December 31, 2017. This bonus would be reflected on the January 7 to January 20, 2018 wage statement.10 To calculate the OverTimePay-Override line, the hours worked in December 2017 would be used because that is the time period in which the bonus was earned. In this hypothetical, the employee had worked 160 regular hours and 20 overtime hours in December 2017, for a total of 180 hours. First, divide $360 by 180, which results in $2. This number represents the increase to the regular hourly rate. Multiply $2 by 0.5 and the result, $1, represents the increase to the overtime hourly rate. Then, take $1 and multiply it by 20, the overtime hours worked during December 2017, and the result, $20, is the overtime pay adjustment, which would be identified as the OverTimePay-Override line on the wage statement. This allocation, at least for production or piecework bonuses, is calculated by using the method described above in footnote 4. 

And “footnote 4” says:

To calculate the amount to be entered on the OverTimePay-Override line: (1) take the bonus earned during the bonus period, whether it be by year, quarter, or month; (2) divide the bonus by the total number of hours worked during the bonus period; (3) multiply the resulting number by 0.5; (4) multiply the resulting number by the total number of overtime hours worked during the bonus period. 

Our Supreme Court in a recent decision concerning flat sum bonuses under California law decided that the proper method for calculating the rate of overtime pay when an employee receives both an hourly wage and a flat sum bonus is to divide the bonus by the number of nonovertime hours actually worked during the bonus period. (Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 562 (Alvarado).) The Supreme Court specifically excluded production or piecework bonuses or a commission from its holding. (Id. at p. 561, fn. 6.)  

So, the Court specifically interprets the Dart case as inapplicable to production bonuses. Check the way your organization calculates retro overtime on bonuses that are earned across multiple pay periods.  It should conform with the above.

Moving on to wage statements. Every pay period, the employer has to furnish a wage statement that contains 9 categories of information all spelled out in Labor Code section 226.  (In addition, the paid sick leave balance has to be included per the paid sick leave law.)

The plaintiffs argued that Wells’s inclusion of the retro overtime on the wage statement for a given pay period was illegal, because the company did not spell out the hours for which the retro overtime was paid. The Court rejected the argument because the wage statement’s requirements of separately listing rates and hours applies only to the wages and hours applicable to the particular pay period in question, not retro pay.  Or, as the Court put it:

Based on the above statutory construction and the method by which OverTimePay-Override was calculated, there were no “applicable hourly rates in effect during the pay period” that corresponded to OverTimePay-Override. Accordingly, there was also no “corresponding number of hours worked at each hourly rate by the employee” for the pay period that applied to OverTimePay-Override. As discussed above, OverTimePay-Override represented additional wages that were earned as overtime pay based on nondiscretionary bonuses being spread over the hours worked during the bonus period. Moreover, based on how OverTimePay-Override was calculated, the overtime hours were worked in previous pay periods for which employees had already received their standard overtime pay. The itemized wage statement issued by an employer need only provide the applicable hourly rates and the corresponding number of hours worked “in effect during the pay period.” In other words, the employer need only identify on the wage statement the hourly rate in effect during the pay period for which the employee was currently being paid, and the corresponding hours worked. 

The Court next turned to the timing of furnishing wage statements to terminated employees. The Court focused on what the statute specifically said about when the wage statement must be provided: 

Section 226 provides that an employer must furnish the wage statement as either “a detachable part of the check, draft, or voucher paying the employee’s wages,” or separately when the wages are paid by personal check or cash. Other than that one provision, section 226 describes no other specific means by which an employer is to furnish the itemized statement to an employee. Thus, mailing the wage statement is a viable means to “furnish.” Defendant could also furnish the wage statement separately because paying discharged employees by cashier’s check was the equivalent of paying them by cash.11 However, the Legislature also provided for when an employer was to furnish the wage statement to the employee: “semimonthly or at the time of each payment of wages.” 

The Court therefore reasoned that the law does not require employers to give employees a wage statement along with final pay. Rather, the law says that the wage statement has to be provided “semi-monthly OR at the time of payment.”  

by the plain meaning of the statute, defendant also had the option of furnishing the wage statement semimonthly. (§ 226, subd. (a).) Additionally, nothing in section 226 suggests that an employer cannot furnish the wage statement prior to the semimonthly date. For example, suppose an employer furnishes wage statements on the first and the fifteenth of each month. The employer discharges an employee on the second of the month. Per the statute’s plain language, if an employer pays the final wages by personal check or cash, it has the option of furnishing the discharged employee with the wage statement on the fifteenth. 

PROTIP: To avoid claims of failure to provide the wage statement timely, don’t mail it without a return receipt or other proof of delivery.

The case is Canales v. Wells Fargo Bank and the opinion is here. 

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