By Cathleen S. Yonahara, Freeland Cooper & Foreman LLP

Issuing inaccurate or incomplete itemized wage statements, also known as "pay stubs," can result in significant liability for employers. California law requires employers to provide specific information in pay stubs and imposes significant penalties on employers that fail to follow those requirements.

The number of lawsuits based on noncompliant wage statements has dramatically increased recently because employees can easily file representative action lawsuits under the California Private Attorneys General Act (PAGA) for pay stub violations.

What Needs to Be on a Pay Stub?

Under California Labor Code Section 226(a), when wages are paid, an employer must provide a pay stub, i.e., "a detachable part of the check, draft, or voucher paying the employee's wages," or a separate written document if wages are paid by personal check or cash, showing the following:

1. The gross wages earned;
2. The total hours worked by a nonexempt employee;
3. The number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis;
4. All deductions;
5. The net wages earned;
6. The inclusive dates of the period for which the employee is being paid;
7. The name of the employee and the last four digits of his Social Security number (SSN) or an employee identification number other than an SSN;
8. The name and address of the legal entity that employs the worker 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
9. All applicable hourly rates in effect during the pay period and the corresponding number of hours the employee worked at each hourly rate. (A temporary services employer must also show the rate of pay and the total hours worked for each temporary services assignment.)

Furthermore, Labor Code Section 246(i) requires that the pay stub or separate written document provided with the employee's pay on the designated pay date include the amount of available paid sick leave or paid time off (PTO) an employer provides in lieu of sick leave. Employers that provide unlimited paid sick leave or unlimited PTO may comply with this requirement by stating "unlimited."

In accordance with Labor Code Section 226.2, the pay stub for employees paid on a piece-rate basis must also include:

1. The total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for rest periods during the pay period; and
2. Except for employers that, in addition to paying on a piece-rate basis, pay at least minimum wage for all hours worked, the total hours of other nonproductive time, the rate of compensation, and the gross wages paid for other nonproductive time during the pay period.

Must the Amount of Accrued Vacation Be Included on Pay Stubs?

In Soto v. Motel 6 Operating, L.P. (2016) 4 Cal.App.5th 385, an employee sued her former employer for allegedly violating Labor Code Section 226(a) by failing to include the monetary amount of accrued vacation pay in its employees' wage statements.

The court dismissed the case, holding that "Section 226(a) does not require employers to include the monetary value of accrued paid vacation time in employee wage statements unless and until a payment is due at the termination of the employment relationship." On February 5, 2018, a California Court of Appeal similarly held in Mora v. Webcor Construction, L.P. that Section 226(a) doesn't require employers to specify the hours and hourly rate associated with a payment to a union vacation trust fund.

Generally, vacation and PTO are treated similarly in that both are considered vested wages, and employers must pay out unused vacation or PTO upon termination of employment under California law. However, vacation and PTO are treated differently for purposes of pay stubs. Under California case law, employers do not need to list the amount of accrued vacation until payment is due upon termination of employment. By contrast, employers that offer PTO in lieu of sick leave must list the amount of accrued PTO on each pay stub under California Labor Code Section 246(i).

What are the Penalties for Inaccurate or Incomplete Pay Stubs?

Under Labor Code 226, employees who are given inaccurate or incomplete pay stubs may recover the greater of all actual damages, or $50 for the initial pay period in which a violation occurs and $100 per employee for each violation in a subsequent pay period, up to an aggregate penalty of $4,000, and an award of costs and reasonable attorneys' fees. Given that claims for inaccurate or incomplete wage statements are usually brought as a representative action lawsuit under the PAGA, those penalties add up very quickly.

Bottom Line

Using the services of a payroll company to prepare employees' pay stubs doesn't absolve your organization of its responsibility to provide complete and accurate pay stubs in a timely manner. Don't make the mistake of assuming your third-party payroll service provides pay stubs that are compliant with California law. We have seen too many situations where that isn't the case. Be proactive in having your pay stubs reviewed for compliance with California law.

Cathleen S. Yonahara, an editor of California Employment Law Letter can be reached at Freeland Cooper & Foreman LLP in San Francisco, yonahara@freelandlaw.com.