Labor Code section 226 requires that employers provide to employees semimonthly or at the time of each payment of wages, either as a detachable part of the check, or separately if wages are paid by personal check or cash, accurate itemized statements in writing. The Labor Code refers to these documents as “itemized statements”, but they are also referred to as pay stubs, wage statements, and itemized wage statements. Employers need to ensure compliance with the technical aspects of Labor Code section 226, and should audit this information on a regular basis, and should at least consider these five issues:
1. Ensure compliance with Labor Code section 226(a).
Labor Code section 226(a) requires the following information to be listed on employees’ pay stubs:
- Gross wages earned;
- Total hours worked (not required for salaried exempt employees);
- The number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece rate basis;
- All deductions (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 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.
2. Small technical errors can still result in substantial liability.
In Savea v. YRC Inc. (2019), the plaintiff alleged defendant YRC Inc. violated Section 226 because the company listed its fictitious business name (“YRC Freight”) on the wage statement. Ultimately the Court of Appeals held that “[b]ecause YRC Inc. and YRC Freight are the same ‘legal entity,’ YRC did not violate section 226, subdivision (a)(8) by listing YRC Freight as the employer name on its wage statements.” The court also rejected plaintiff’s argument that the employer did not provide its “address.” The employer listed its full address on the pay stub, “10990 Roe Avenue, Overland Park, KS 66211.” Plaintiff argued that the address should have also listed a mail stop code or ZIP+4, so it should have listed, “10990 Roe Ave. MS A515, Overland Park, KS 66211-1213.” (Italics added.) The court also rejected this argument, and held that the employer provided its full address on the pay stub and was not required to list the mail stop or ZIP+4 number in the address.
Even though the employer prevailed in Savea, it is a good example of how closely the pay stubs will be examined in litigation, and even a minor technical error could create substantial liability. In addition, in a different case, Clarke v. First Transit, Inc. (2010), the court held that an employer that only provided a logo with the words “First Transit” on the wage statement violated section 226(a)(8) because it “did not accurately reflect the employer name of First Transit Transportation, LLC, as opposed to First Transit, Inc., a separate and distinct entity.” Therefore, even though the employer prevailed in Savea, companies must be very careful about listing the correct legal entity on the employee wage statements for compliance with section 226.
3. Potential penalties for violations.
Labor Code section 226(e) provides that an employee “suffering injury as a result of a knowingly and intentional failure by an employer” can result in damages of $50 for the initial pay period and $100 per employee for each subsequent violation, not to exceed $4,000. In addition, Labor Code section 226.3 provides that employers who violation Labor Code section 226(a), are subject to a civil penalty of $250 per employee per violation for the initial “citation, and $1,000 per employee for each subsequent violation.
4. Wage statements must be maintained for at least three years.
A copy of employee’s wage statements and records of the deductions must be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California. A “copy” includes a duplicate of the itemized statement provided to an employee or a computer-generated record that accurately shows all of the information required under the Labor Code.
Employers must provide copies of pay stubs to employees upon written or oral request no later than 21 days from the date of the request. See Labor Code section 226(c). For more information about responding to records requests by current and former employees, see our prior article here.
5. Don’t rely upon a payroll company to save wage statements.
Employers should not rely upon their payroll company to retain copies of employee wage statements. First, the obligation falls on the employer do retain these, and many payroll companies do not necessarily save this information. Second, if the employer changes payroll companies, it may be difficult to access the payroll information from the former payroll company.
Payroll companies are quick to provide employers copies of payroll reports listed the totals paid for all employee for a given time period. While these reports show the wages and deductions, the payroll reports are not a substitute for a copy of the wage statements. Employer must ensure that they saved, and have access to the wage statements provided to employees.