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California Wage Statement Compliance

by Jennifer Shaw and Megan Donaghey | The Daily Recorder | June 6, 2023

California’s scheme of wage and hour law is vast, complex, and ever changing. It can be difficult for employers to keep up with the mandates to avoid liability. Although the Labor and Workforce Development Agency (“LWDA”) may assess civil penalties for certain violations of the Labor Code, the Private Attorneys General Act (“PAGA”) allows an employee to assert claims and collect penalties on behalf of themselves, the state, and other aggrieved employees, as well as attorneys’ fees and costs associated with the PAGA action. Most penalties range between $50 and $250 per employee, per incident. An “incident” typically is a pay period. Consequently, PAGA is a significant, additional source of wage and hour liability for California employers.

One area of wage and hour law particularly ripe for PAGA claims is wage statement compliance. California employers must provide employees with a wage statement that includes certain information. Wage statement violations are identifiable easily, because the requisite information must be contained in a single document provided to employees for each pay period. If an employer fails to provide an accurate wage statement as required, they could be subject to civil penalties of $250 per employee per violation for the first violation, and up to $1,000 per employee for each subsequent violation. In addition, an employee may recover the greater of the employee’s actual damages, or $50 for the initial violation and $100 for each subsequent violation, not to exceed an aggregate penalty of $4,000, plus costs and reasonable attorneys’ fees.

Many employers assume that their wage statements include all of the required information because they use a third-party vendor to process payroll documents. However, the burden is on the employer to ensure they satisfy the legal requirements.

Basic Wage Statement Requirements

California Labor Code section 226(a) outlines the basic wage statement requirements. All wage statements must include the following information for the pay period: gross wages earned; total hours worked (for non-exempt employee); the number of piece rate units earned and any piece rate (if applicable); all deductions; net wages earned; the inclusive dates of the pay period; the employee’s name and employee identification number or last four digits of their Social Security Number; the employer’s legal name and address; and all applicable rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.  Some of these requirements are not as straightforward as they might seem. For instance:

Total Hours Worked. The wage statement may separately list the total regular hours and the total overtime hours. However, only actual working hours should be included.  Employers should not include vacation, paid time off, paid sick leave, or other non-working hours as total hours worked. 

Employer’s legal name and address. To minimize potential liability, employers should provide the organization’s legal name and not its fictitious business name on the wage statement. Additionally, farm laborer contractors must include the name and addresses of all legal entities that secured the employer’s services. 

Other Wage Statement Requirements

Paid Sick Leave. The employee’s available sick leave balance under the Healthy Workplaces, Heathy Families Act of 2014 either must be included on the wage statement or provided to the employee in a separate document at the same time as the paycheck is issued.  Employers with unlimited paid time off policies may simply include the term “unlimited.”

Meal and Rest Break Premiums. Employers are required to pay “one additional hour of pay” at the employee’s regular (not base) rate of pay for each day during which the employer failed to provide a compliant meal period (and an additional hour for any rest period violation).  This premium pay must be listed separately on the wage statement. 

Split Shifts. Where provided, split shift premiums also should appear on a separate line on the wage statement.

Employers must retain copies of wage statements for at least three years at the place of employment or at a central location within the state.

Practical Considerations

Given the significant consequences of issuing non-compliant wage statements, employers should review their processes to ensure they are complying with all applicable statutory requirements.

Employers can minimize their potential PAGA liability by conducting an internal wage statement audit, which can help to identify errors and omissions and allow the employer to fix any problems before a PAGA claim surfaces. Wage statement audits should include a sufficient cross-section of employees. For instance, if some employees earn a piece-rate, wage statements that reflect payments to such employees should be included in the audit process. The audit also should ensure that all the required information is apparent on the wage statement’s face, because the statement is not compliant if the employee must refer to another document to obtain the required information, such as their regular rate of pay for overtime purposes.

Conducting an audit in collaboration with a licensed attorney will ensure that unique situations properly are analyzed, and communications about identified errors can remain privileged (that is, not discoverable). Additionally, conducting wage statement audits can help employers demonstrate their commitment to compliance and ethical business practices.