California Employers Face Significant Penalties for Pay Stub Violations

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This is the third in a three-part series of articles about California wage statement laws. This installment addresses the penalties associated with wage statement violations. Read the first part here and the second part here.

When California employers fail to accurately provide certain details on pay stubs, they might incur steep fines under state law. California attorneys told SHRM Online that even hypertechnical violations may be costly for employers.

California law specifies 10 items that must be listed on the wage statements that are provided to employees each payday. The purpose is to provide workers with enough information to verify that they are being properly paid, according to the state Division of Labor Standards Enforcement.

Employers may incorrectly assume that pay stub compliance is just a matter of paperwork and can simply be corrected, said Christopher Ahearn, an attorney with Fisher Phillips in Irvine. "Employers should understand that the penalties for wage statement violations can be very high," he noted.

Statutory penalties under the California Labor Code start at $50 for the first violation and rise to $100 for each subsequent violation. These penalties are assessed on a per-employee basis—up to a maximum of $4,000 for each employee who receives inaccurate pay stubs.

[SHRM members-only toolkit: Complying with California Wage Payment and Hours of Work Laws]

The penalties under California law can add up quickly. "A single mistake can lead to several penalties," noted Bruce Sarchet, an attorney with Littler in Sacramento. For example, if an employer didn't provide a worker with a meal break, the employer would have to pay a penalty to the employee for the missed break and would also face a fine for failing to report the meal-break penalty on the pay stub.

Another wrinkle in the law is that penalties are assessed per paycheck, Sarchet explained. Employers in the state must pay workers at least twice per month, though some pay workers every week. It benefits employees to receive a paycheck every week, but employers that pay workers with that level of frequency double their exposure to potential wage statement penalties, he said.

PAGA Claims

In addition to penalties for labor code violations, employers may face fines under California's Private Attorneys General Act (PAGA). PAGA allows aggrieved employees to sue over alleged labor code violations on behalf of themselves and other employees and to step into the shoes of state regulators to recover civil penalties. Seventy-five percent of the penalties that are recovered go to the state, and 25 percent go to employees.

PAGA claims include technical wage statement violations—for example, a business may face penalties for improperly listing the name under which it does business instead of its legal name. Even simple formatting errors can result in penalties, Ahearn noted.

Under PAGA, an initial violation carries a $100 penalty per employee per pay period. Every subsequent violation carries a $200 penalty. Moreover, plaintiffs can recoup attorney fees under PAGA.

"Those numbers add up really fast," Ahearn said.

The act was amended as an attempt to curb frivolous claims, but PAGA claims can still be expensive for employers. Several bills to further reform PAGA are currently making their way through the state legislature, Sarchet noted.

Employers should note that they do have an opportunity to correct PAGA violations and avoid penalties. If an employer receives a letter notifying the business about potential violations, the employer should consult counsel right away, Ahearn said. The employer has 33 days from the date of the letter to make pay stub corrections. No time extensions are available, so if the letter isn't immediately acted upon, the employer will miss the opportunity to significantly reduce potential penalties, he said.

Regular Audits

Employers need to regularly audit their practices for compliance, Sarchet said, and the audit should cover more than just wage statements. For example, employers should also ensure that they are providing meal and rest breaks, paying employees the required penalties if breaks are missed, and recording the penalty payments on wage statements.

This was the third in a three-part series of articles on California wage statement laws. The first installment reviewed common pay stub errors that employers make. The second installment explored the rules for electronic pay stubs.

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