While there are many benefits to utilizing a managed payroll service, it doesn't mean exemption from legal claims by employees, especially for issues such as wage statements.
There have been a number of legal battles recently in California and federal courts involving claims around wage statements. Although the majority have been favorable outcomes for employers, it is still a legal minefield that must be carefully navigated by businesses.
Managed Payroll Services and Wage Statements
In Blair v. Dole Food Co., a California Court of Appeal recently reviewed a claim brought by an exempt, salaried employee against her former employer, Dole Food Co. She claimed that the company was in violation of failing properly to identify employees on their wage statements, and failing to identify an accurate hourly pay rate for exempt employees when those employees were paid accrued vacation wages.
According to California Labor Code section 226(a)(7), employee wage statements must state either “only the last four digits of [the employee’s] social security number or an employee identification number other than a social security number.”
Because Dole Food utilized a payroll servicing company to issue employee wage statements, the payroll servicing company generated its own unique employee “file” number for payroll purposes. The payroll service placed these “file” numbers on the employee wage statements, in lieu of the last four digits of employees’ social security numbers or the employer’s internal employee ID numbers.
The California Court of Appeal held that the use of payroll service provider-generated unique employee file numbers on employee wage statements, instead of employer-generated identification numbers, or the last four digits of employee social security numbers, is legally permissible under California law. In other words, Dole met its obligations under section 226(a)(7), as long as the number chosen consistently appeared on the employee's wage statement.
Secondly, the court determined that employers are not required to state applicable hourly rates for payments of accrued paid time off or vacation on exempt employee wage statements.
Employees Outside of California and In
A California judge ruled on the Oman v. Delta case on January 6, 2017, in the U.S. District Court for the Northern District of California. The federal court considered four Delta flight attendant’s claim that they did not receive timely and complete wage statements for their time spent working in California.
The class-action lawsuit file by the flight attendants against their employer, Delta Airlines, claimed that because they are often working in California that their scheduled work for that pay period should be governed by the California Labor Code and they are entitled to the benefits associated with that status. Delta filed a pre-certification summary judgment motion, in response, which challenged the applicability of California Labor Code Sections 226 and 204, which require wage statements and determine the timing of pay.
District Judge William Orrich ultimately ruled in Delta’s favor, writing that since the flight attendants worked minimal hours in California, California wage and hour laws did not apply to them. The judge went on to note that because Delta is headquartered outside of California, this further negates the flight plaintiffs’ argument.
What You Must Know About Wage Statements
California Labor Code Section 226(a) requires that each itemized wage statement include:
- Gross wages earned
- Total hours worked by a nonexempt, hourly employee
- All deductions
- Net wages earned
- The inclusive dates for the period the employee is paid
- The name of the employee and the last four digits of his/her social security number or an employee identification number
- The employer’s legal name and address
- All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate
- For employees paid on a piece-rate basis, the number of piece rate units earned, regardless of time worked
This information must be presented in a way that employees can “promptly and easily” determine from the wage statement alone.
In order to prevent potential legal claims against your company you should take steps to address some common wage statement issues. When it comes to employee claims and lawsuits, proactive compliance is always the best defense. All employers should seek legal counsel and carefully review the format and content of their wage statements to ensure strict compliance with Section 226 for each pay period.
This is particularly true for those businesses that pay employees based on “piece rates,” commissions, bonuses, or any other non-hourly or combined methods of compensation. Failure to comply could result in statutory penalties of up to $100 per pay period, per employee, up to a maximum of $4,000 per worker, plus additional civil penalties and other damages.
Employers Take Note
Employers must provide California employees with itemized wage statements clearly detailing how their pay is calculated. Employers who fail to include the required information are setting themselves up for potential claims.
Keep in mind that whenever an employee talks to a lawyer about a claim against an employer, the lawyer will ask to see a pay stub. These claims are far easier and less costly to prevent than they are to resolve in court.
Stay Informed on California Labor Laws
Changes in regulations expand the potential of risk for employers, require new workplace postings, or mandate updates to existing workplace policies. We recommend that all employers consult with experienced employment counsel to ensure compliance.
Accurate and timely management and compliance practices are required for every business and every payroll professional.
But there are options.
Accuchex, a reputable payroll management services provider, can not only relieve you of the burden of your ongoing payroll process demands, but can potentially prove to be a more cost-effective solution, as well.
Click this link to get your free download of our Payroll Outsourcing Guide. Or click the button below to learn what you need to know about labor law in California. For more information, feel free to call Accuchex Payroll Management Services at 877-422-2824.