In 2013, changes to California Labor Code section 226 brought dire warnings of an impending wave of employee class action lawsuits relating to inaccurate or incomplete wage statements. And it happened. Changes to the statute made it much easier to demonstrate an “injury” under the law, and injuries for violations of the statute could easily be alleged and proven on a class-wide basis. Most cases involve simple oversights or mistakes that were easily avoidable and are easily fixed.

Check Your Company’s Pay Stubs for Compliance

Accurately list nine categories of information. With that pay stub in hand, check it to make sure it accurately lists all of the following:

1. Gross wages earned.
2. Total hours worked (for all non-exempt employees).
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. Net wages earned.
6. The inclusive dates of the pay period.
7. The employee’s name and either the last four digits of his/her social security number or an employee identification number.
8. The name and address of the legal entity that is the employer.
9. All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate. This information must appear on the stub the employee retains after deposit.

In 2015, Governor Jerry Brown signed AB 1506, which granted some relief to employers found to be violating requirements for the inclusive dates of the pay period and the name and address of the legal entity that is the employer.  The amended statute allows the employer to “cure” the alleged violation within 33 days of receiving notice of the PAGA claim by providing “fully compliant, itemized wage statement . . . for each pay period for the three-year period prior to the date of the written notice” to each affected employee.

It’s surprising how many pay stubs do not list all of the above information, or list it incorrectly, and, the bad news is that, under the recent amendments to the law, the potential penalties for seemingly innocuous mistakes can be substantial. The good news? These issues should be easy to fix going forward.

Fix Errors A.S.A.P.  because “Injury” is Easily Established and the Penalties are Substantial

Labor Code section 226 provides that an employee “suffering injury” as a result of a knowing and intentional failure by an employer to comply with the above requirements is entitled to 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, not to exceed an aggregate penalty of $4,000, plus costs and reasonable attorney’s fees. Labor Code section 226.3 further provides that an employer who violates section 226 shall be subject to a civil penalty of $250 per employee per violation in an initial citation and $1,000 per employee for each violation in a subsequent citation. These violations and resulting penalties add up quickly. In response to several conflicting court decisions regarding the definition of the term “injury,” an employer’s liability for penalties under section 226 was significantly expanded at the beginning of 2013 when the statute was amended to clarify the circumstances under which an employee is deemed to “suffer injury.” The statute now provides that an employee is “deemed to suffer injury” if (1) the employer fails to provide a wage statement, or (2) the employer fails to provide accurate and complete information pertaining to the nine categories listed above and “the employee cannot promptly and easily determine from the wage statement alone,” that is, without reference to other documents or other information, one or more of the following:

The amount of the gross wages or net wages paid to the employee during the pay period.

The total hours worked (by non-exempt employees).

The number of piece rate units earned and the applicable piece rate (for employees paid on a piece rate basis).

All deductions made.

Inclusive dates of the pay period.

All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.

The name and address of the employer (with additional information for farm labor contractors).

The name of the employee and only the last 4 digits of his/her social security number or an employee identification number.

Commonly Litigated Pay Stub Issues

Even prior to the amendment of the statute, complaints alleging a violation of section 226 based on the employer’s alleged failure to accurately list the total hours worked and/or to accurately list all applicable hourly rates in effect and the corresponding number of hours worked at each hourly rate were fairly common. As an example, in one federal district court case, McKenzie v. Federal Express Corporation (CD Cal. 2011) 765 F.Supp.2d 1222, the court found that Federal Express violated section 226 by, among other things, issuing wage statements which listed three categories of hours, (1) “OvrTimePrm,” (2) “Overtime” and (3) “Reg Earn,” and did not provide a separate category calculating the total hours worked. As the court explained,

[T]hese statements list the number of hours worked at the regular rate of pay, and state the number of overtime hours under both the “Overtime” and “OvrTimePrm” categories. For example, one of [plaintiff’s] wage statements provides that she worked a total of forty hours at the “Reg Earn” rate, and lists 9.12 hours twice under the “Overtime” and “OvrTimePrm” rates of pay. If an employee sought to calculate the total number of hours worked during a pay period, they would have to add the hours listed under the “Reg Earn” and “Overtime” categories,” [i.e. for a total of 49.12 hours]. However, if an employee were to add the hours corresponding to all three of these categories, the total hours worked [i.e. 58.24] would be incorrect.” Id. at p. 1226.

The court found that FedEx’s pay stubs violated Section 226 because “the total regular and overtime hours listed in FedEx’s wage statements, when added together, do not sum up to the total hours worked by the employee during the pertinent time period” and, without additional information regarding the wage statement, (i.e. that the overtime hours are always listed twice, an employee cannot simply “determine his or her hours worked by summing up the figures on a wage statement without need to reference any other time records or other documents.” Id. at p. 1229).

In addition, since the statute was amended, numerous class action complaints have been filed over much more straightforward issues, such as the failure to list the employer’s address on the paystub and the failure to list the company name correctly. Such issues are frequently overlooked, but easily remedied once discovered. Help your company stay afloat when the next wave of class action litigation hits – review your pay stubs today.