Retain copies of all payroll documents, especially before you switch payroll providers – This issue seems to crop up on nearly a daily basis for us. My team and I are responding to demand letters from lawyers, asking for the payroll records for an employee. We are defending wage and hour lawsuits, single employee, class actions, or PAGA matters. Or maybe we get a Complaint from the Division of Labor Standards Enforcement (“Labor Commissioner”) and need to defend that matter. In all the above scenarios, we need at least four years’ worth of payroll documents (paystubs/wage statements) for the plaintiff, class members, or all “aggrieved employees.”
We then turn to you, our clients, to produce these records, which are required to be maintained by the employer for four years. And in SO many of these cases, what we are told is “we switched payroll providers a year (or two) ago, and we don’t have access to the records from the prior provider.” When you all switch payroll providers, in many if not most cases, your former provider (not happy with your new choice) holds your employee records hostage. As a result, we are left with holes in the data we are required to provide.
The problem is, switching payroll providers is NOT a good excuse for not having these payroll records, which, as I said above, you are required to maintain.
There is a solution to all this. Before you switch vendors ( payroll provider, POS system, HRIS system), make sure to download and retain at least four years’ worth of back data from that provider!
This is not that hard. The problem is most employers do not think to do this until the demand letter or lawsuit comes in and after the switch has been made. Then it is too late.
And if you have never gotten a demand letter for records or a wage and hour lawsuit, say a little prayer of thanks, but then, wake up. If you are doing business in California, it’s coming. Even if it is just the demand letter. We are seeing them come in daily from our clients now, and often on VERY small employers. Having these records helps you, especially if you are doing everything right. Save them. Save them NOW. Save them annually so you don’t even have to think about going back four years when you switch providers, which you also will do if you have not lately.
And while you are at this, confirm you have all your other employee related records, even for very long-term employees. That is the topic for another article, but it’s all too often a related problem.
Wage statement compliance – Now that we have discussed retaining your pay stubs/wage statements for at least four years, let’s review what needs to be on those pay stubs. California Labor Code Sec 226 lists very specific information that must be on every employee’s wage statement. Even if you pay your employees all wages, break pay, sick pay, and overtime, if the wage statement is inaccurate or incomplete, there is a penalty – up to $4000 per year per employee. For relatively small employers of 100 employees, a mistake could mean $400,000 JUST IN WAGE STATEMENT PENALTIES! Now you know why I harp on these technicalities.
All employees in California must have a wage statement that includes the following: (1) name of the employee, (2) the employee’s ID number (or last four of their social security number), (3) the employer’s correct, complete name and address, (4) the beginning and end dates of the payroll period, (5) gross wages earned, (6) deductions withheld and itemized, (7) net wages earned, (8) the amount of sick pay earned and available, to date, (9) the hourly rate(s) or salary earned in the pay period, and, if the employee is NOT exempt, (10) the number of regular hours and overtime hours worked (with rates of pay attached to each).
This seems simple enough, and hopefully most of you have all this information set forth correctly. And yet, employers have errors in their paystubs all the time.
The most common is leaving off sick pay. I wrote a whole separate article on this, so hopefully you have all caught up. But do NOT assume that if you have a big provider like ADP or Paylocity that this is automatically done for you. It is NOT. And those providers disclaim all responsibility if your paystub is wrong. They blame you, and rightly so. Compliance with the Labor Code is not a responsibility you can delegate.
Next, every time an employee is misclassified as exempt or paid on a salary basis when they are truly non-exempt, you will have a Section 226 violation. This is why there really can be no “salaried, non-exempt” employees. Non-exempt employees MUST have their hours of work and hourly rate of pay spelled out on these wage statements. If you pay your non-exempt employees on a salary, even if you believe they have worked no overtime, their hours of work and hourly rate of pay are not spelled out on the paystub. You can always annualize an expected “salary” in an offer letter, but if you are hiring a non-exempt employee, you must spell out their HOURLY rate of pay. And you must provide them a Wage Theft Prevention statement, otherwise known as a Labor Code 2810.5 form, which tells them their hourly rate.
Then, do not forget the other bits that need to go on wage statements. Any other compensation paid to them, such as bonuses, must be reflected, and if necessary, the wage statements must reflect any recalculation of overtime, break pay, and sick pay made because of bonuses or extra compensation paid to hourly employees. I reviewed this issue recently when I discussed calculating regular rate of pay (RROP). Special pay such as meal break pay, rest break pay, reporting time pay, split-shift pay, must be noted separately, because this money is paid on top of hours worked.
Also do not forget – if you are paying PTO instead of separate sick and vacation pay, PTO is treated like sick pay for purposes of this Labor Code section and must be reflected on the paystub.
Pay employees timely under the Labor Code – Another big mistake employers often make, and which will be reflected by a compliant wage statement, is paying employees too late under the Labor Code.
California law always had strict dictates for how often and when employees must be paid their wages. However, it is only within the last few years, with the advent of new Labor Code penalties (Labor Code Sec 210) and PAGA suits that we see these deadlines costing employers real money. In many cases, employers inadvertently miss these deadlines, so pay attention to these rules.
Non-exempt employees MUST be paid at least twice a month, either weekly, bi-weekly, or semi-monthly. And here is what Labor Code Section 204 says about the frequency:
The employer must establish a regular payday and is required to post a notice that shows the day, time and location of payment. Labor Code Section 207. Wages earned between the 1st and 15th days, inclusive, of any calendar month must be paid no later than the 26th day of the month during which the labor was performed, and wages earned between the 16th and last day of the month must be paid by the 10th day of the following month. Other payroll periods such as weekly, biweekly (every two weeks) or semimonthly (twice per month) when the earning period is something other than between the 1st and 15th, and 16th and last day of the month, must be paid within seven calendar days of the end of the payroll period within which the wages were earned. Labor Code Section 204
These are the OUTSIDE dates. That means, if you all push pay days to these latest possible dates but then are delayed by an errant paycheck, bank glitch, or even just push to the “next business day” because your pay day falls on a weekend or holiday, you are out of compliance.
CHECK YOUR PAY DATES!
Some of you have policies that withhold pay if an employee gets their hours into you late. You cannot do this. You are permitted to take up to the next payroll cycle to pay overtime, but NOT regular wages. Costly penalties can be triggered by late payment, even if you eventually pay all owed wages. Pay your best estimate of the hours your employee worked, reconcile on the next paycheck, AND DO NOT LET YOUR EMPLOYEES RUN YOUR BUSINESS! Employees who are playing these games with their hours, or those who keep forgetting to punch in or out, should be counseled, disciplined, suspended, and ultimately fired. The Labor Code has no tolerance for mistakes and doesn’t want to hear your excuses. It holds employers accountable. You must hold your employees accountable accordingly.
If you are in doubt about any of this, send us a sample wage statement. We review wage statements/paystubs for compliance all the time.
