Vedder Thinking | Articles California Corner: Paying the Piper—How Non-CA Companies Run Afoul of CA Pay Requirements
California has many specific and technical requirements applicable to businesses with operations in the state. The format of employee paychecks (and corresponding paystubs) is an issue that is frequently overlooked by non-California businesses, despite the fact that California law features very specific provisions addressing these requirements. One group who is distinctly not overlooking these requirements is the California plaintiffs' bar, which has targeted out-of-state companies via class actions alleging improper paycheck practices. Because paycheck templates are typically used companywide, class action certification is virtually guaranteed in these cases, and the statutory penalty provisions multiply on a per-paycheck, per-employee basis, so the potential exposure is often quite large, even for a technical violation. So, now that we have your attention, what does California law require?
Section 226 of California's Labor Code specifies the information that must be included on an employee's paystub, as follows: (1) gross wages, (2) total hours worked, except for salaried, overtime-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) deductions (may be aggregated), (5) net wages earned, (6) the inclusive dates of the pay period, (7) employee name and the last four digits of his/her social security number (or employee identification number), (8) the name and address of the legal entity that is the employer, and (9) all applicable hourly rates in effect during the pay period, the corresponding number of hours worked at each hourly rate, and, as of July 1, 2013, if the employer is a temporary services employer, the rate of pay and the total hours worked for each temporary services assignment. All employees must be provided a paystub (or the opportunity to access one).
Section 212 of California's Labor Code prohibits an employer from issuing a paycheck unless it is "negotiable and payable in cash, on demand, without discount, at some established place of business within the state, the name and address of which must appear on the instrument. . ." This means that the paycheck must have the name of a California financial institution on the face of the check, where an employee may present his/her check to be cashed on payday, without incurring a fee or a "hold" on funds.
Employees who are paid via direct deposit or other electronic means are not exempted from these requirements. Further, attempts by employers to hold third-party payroll providers liable for violations of either of the above statutes have been unsuccessful. The courts have consistently held that the obligation to comply with these provisions lies solely with the employer. In our experience, many large payroll providers may be unaware of these provisions, leaving companies with nationwide footprints exposed to potential liability. These are facially simple requirements, but ignorance is not a defense. If you don't review your pay practices, you might find it is, indeed, time to pay the piper.
If you have any questions about this, or any other California matter, please contact Brendan G. Dolan at +1 (415) 749 9530, Heather M. Sager at +1 (415) 749 9510 or Lucky Meinz at +1 (415) 749 9532.