California plaintiffs’ lawyers typically bring every type of wage-hour claim they can. Increasingly, however, they have focused on one type of claim – wage statement violations.
As we have previously written about, bringing class and representative actions under California’s Private Attorneys General Act (“PAGA”) alleging that employers did not fully comply with California’s onerous wage statement laws has become a lucrative practice for the plaintiffs’ bar. Given the flurry of litigation, it is beneficial for employers that do business in California to review their wage statements to best ensure compliance.
California’s wage statement requirements are mostly found in Labor Code section 226(a). Employers must, either semimonthly or at the time that wages are paid, provide to their employees “an accurate itemized statement in writing” showing the following pieces of information, each of which is discussed in further detail below:
- gross wages earned;
- total hours worked by the employee – except for salaried employees who are classified as exempt;
- if paid on a piece-rate basis, not only the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, but also other particularized requirements;
- all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item;
- net wages earned;
- the inclusive dates of the period for which the employee is paid;
- the name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number;
- the name and address of the legal entity that is the employer and, if the employer is a “farm labor contractor,” the name and address of the legal entity that secured the services of the employer; and
- all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee and, if the employer is a “temporary services employer” the rate of pay and the total hours worked for each temporary services assignment.
Although not required under section 226, California also mandates that employers provide written notice to their employees of their paid sick leave available for use.
An employee should be able to promptly and easily determine these pieces of information such that the employee is able to readily ascertain the information without reference to other documents or information. In other words, as a best practice, all of this information should be contained within a single document.
Gross wages earned
Identifying gross wages earned is straightforward. This amount is the sum of all wages earned that pay period. That amount must be set forth on a wage statement.
Total hours worked
This is also straightforward. This is the sum of hours worked by the employee for that pay period. For example, if an employee were to work 90 hours in a two-week pay period comprised 80 regular hours and 10 overtime hours, then there should be a specific line item on the wage statement for that total. Ideally, that total is below the various line items showing the different types of hours worked that pay period at their applicable rates.
That would appear something like this, although the format can of course vary:
If an employee is paid on a piece-rate basis, the general wage statement law requires that both (i) the number of piece-rate units earned and (ii) their applicable piece rates be set forth on an employee’s wage statement. But that is not all. Labor Code section 226.2 requires an employer set forth several additional items of information, including, among other things, “the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period.”
All deductions to an employee’s wages – e.g., health insurance, 401k, wage garnishment, etc. – must be set forth on an employee’s wage statement, and, as a best practice, each deduction should be a separate line item. However, employers are permitted to aggregate deductions such that they are shown as a single line item so long as the employee has authorized in writing each of those underlying deductions – e.g., agreeing to health insurance such that premiums will be deducted from wages each pay period.
Since withholdings are also subtracted from an employee’s gross wages in order to determine the net wages earned, as discussed below, the withholdings should also be identified on the wage statements. As a best practice, those withholdings should also be itemized.
Net wages earned
The amount of the net wages earned during a pay period is simply the amount of gross wages, less deductions and withholdings. This should be a separately identified amount, just like gross wages should be separately identified.
Inclusive dates of the pay period
This is also straightforward – the beginning and end dates of the pay period for which the employee is being paid must appear on the wage statement. The purpose of this is so that the employee knows for what time period wages are being paid.
Name of the employee and other identifying information
For obvious reasons, the employee’s name must appear on the wage statement he or she is provided. But there must also be other identifying information – either (i) the last four digits of the employee’s social security number (and only those digits), or (ii) that employee’s identification number.
Name and address of the legal entity that is the employer
In order to avoid potential litigation of the issue, as a best practice, the name of the legal entity that is the employer should appear on the wage statement. Although there has been ample litigation over whether the use of fictitious business names (i.e., DBAs) or truncated employer names satisfies this requirement, and although there are good arguments for why doing so is compliant, the best way to avoid a class or representative PAGA action over this issue is to put the precise name of the legal entity.
Separately, if the employer is a farm labor contractor, not only must the name and address of the contractor be identified, but the name and address of the legal entity that secured the services of the contractor must also be identified.
Applicable hourly rates and the number of hours worked at those rates
A wage statement must set forth “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.” For example, both the total number of hours worked that pay period at the base hourly rate of pay, as well as the dollar amount of that rate, should be set forth on the wage statement. As a separate line item, the same should be done for any overtime or double time hours worked.
Also, temporary services employers must set forth on their wage statements the rate of pay and the total hours worked for each temporary services assignment. In other words, if a temporary services employee were to work for AAA Manufacturing on Monday and Tuesday of a workweek, and the employee were then to work for XYZ Foods on Wednesday, Thursday and Friday, then the wage statement should set forth – separately – the hours worked and rates paid for the assignments at AAA Manufacturing and XYZ Foods.
Paid sick leave balance
With some exceptions, employers must provide written notice to their California employees of their paid sick leave available for use. That written notice need not be on a wage statement, however, if it does not appear on a wage statement, it must appear on a separate writing provided to the employee on the same date that wages are paid. As a best practice, employers should provide the sick leave balance on the wage statements.
Unlike sick pay, there is no requirement that an employer include on wage statements the monetary amount of accrued vacation pay in its employees’ wage statements. However, employers must include the monetary value of accrued paid vacation time in employees’ wage statements when payment is due at the termination of the employment relationship.
When paying vacation wages during employment, the best practice is to have a separate line item for vacation wages being paid that pay period.
What if our wage statements do not have this information?
It’s not game over. Corrections can be made and, should there be litigation, there are defenses to wage statement claims, although those are too fact-specific to discuss here.
Putting It All Together
When reviewing their clients’ payroll records, plaintiffs’ lawyers often look at the wage statements first. Having compliant wage statements in place is the best defense an employer can have in thwarting litigation over this type of claim.