California Employers: Are You Complying with Final Pay Rules?

Navigating California's final pay laws can be tricky, and failing to promptly deliver all wages due to employees can lead to significant penalties. That's why HR professionals should make sure they understand the various requirements under state law.

Employers that don't comply with final pay requirements will owe the employee waiting-time penalties equal to a day of pay for each day the employer is late—up to a maximum of 30 days.

"That can be a lot of money," said Jason Barsanti, an attorney with Cozen O'Connor in San Diego. As an example, he said, if an employee was earning $15 an hour and working eight-hour days, that's nearly $4,000 in penalties.

This situation can be avoided if the employer knows the rules. Additionally, Barsanti said, making employees feel like they are respected, even during the separation process, can reduce the chance of a lawsuit. "You should do everything you can to treat people fairly—be polite, shake their hand—let them know they are valued."

[SHRM members-only toolkit: Managing Involuntary Employment Termination in California]

Prompt Payment

California employees who are fired need to get their final paychecks immediately. If an employee quits, however, the time requirement depends on how much notice the worker provided:

• An employee who gives at least 72 hours of notice must receive a final paycheck at the time of separation.
  
• An employee who doesn't give notice must receive the final paycheck within 72 hours.
  

Employers should always err on the side of caution, Barsanti said, noting that issues with delivering a timely final paycheck typically arise when an employee is discharged in a hurry.

If the termination must happen rapidly—for reasons like theft or violence—HR professionals should consult their legal department and ask what may be the best course of action, he said. The legal department may have an answer or may want to call outside counsel.

In some situations, employers may want to offer a little extra severance pay to the worker in exchange for a waiver of certain legal claims, Barsanti noted.

If an employer needs an extra day to get the paycheck cut, it should also give the employee a day's worth of waiting time penalties when the check is delivered. 

Reporting-Time Pay

California law requires employers to provide reporting-time pay in certain situations, even if an employee isn't put to work. If a nonexempt employee is sent home before working at least half of a regularly scheduled shift, the employer typically must pay the employee for half of the shift (but for no less than two hours and no more than four hours). This rule doesn't apply in some emergency situations—for example, if there was an earthquake or a public utilities failure and employees were sent home.

"If the employee is scheduled for eight hours, you must pay four hours," explained Katherine Catlos, an attorney with Kaufman Dolowich & Voluck in San Francisco.

So, if an employee shows up for a regularly scheduled eight-hour shift and is immediately brought into an exit interview, the final paycheck needs to include four hours of reporting-time pay for that day.

"If you call an employee in on a nonscheduled day, you should add two hours of reporting-time pay to the final check," Barsanti said.

Payroll Deductions

Employers must be careful about what deductions they make from workers' paychecks throughout the entire employment relationship—including at the time of separation. The California Department of Industrial Relations says employers may make payroll deductions that are:

• Required of the employer by federal or state law, such as income taxes or garnishments.
  
• Expressly authorized in writing by the employee to cover insurance premiums, hospital or medical dues, or other deductions not amounting to a rebate or deduction from the wage paid to the employee.
  
• Authorized by a collective bargaining or wage agreement, specifically to cover health and welfare or pension payments.
  

Employers can't make wage deductions for a cash shortage, a breakage or loss of company property that resulted from an employee's mistake, an accident, or because of simple negligence (as opposed to a willful or grossly negligent act). These are part of the employer's cost of doing business.

An employee can be disciplined or fired for such mistakes, but employers will get into trouble if they deduct the cost from wages.

Catlos said employers shouldn't deduct money from a worker's final paycheck for the cost of unreturned uniforms, laptops or other company property.  "Instead, the employer must file in small claims court."

If the employer provided a worker with a loan or vacation advance, the employer can't deduct the owed amounts from an employee's final wages, said Steve Hernández, an attorney with Barnes & Thornburg in Los Angeles. "The employer would need to recover those amounts from the employee separately from the final paycheck."

Employers must also ensure that all accrued but unused vacation time or paid time off is included in the final paycheck and is calculated at the employee's final rate of pay.

Hernández noted that commissions, bonuses or other wages—like severance pay—that are agreed upon in an employment agreement or other policy could also be considered wages earned. 

Hand-Delivered?

California law says that an "employee who quits must be paid at the office or agency of the employer in the county where the employee worked." In some circumstances, however, employees who quit can request that their paycheck be delivered by mail or direct deposit.

If an employee is fired, the final payment must be made at "the place of termination."

In most situations, the employee's separation will happen at the company's office, so these rules won't present much of an issue, Barsanti said. But there are situations—particularly for remote workers in California—where the termination may need to be done over the phone.

In those cases, Catlos said, employers can deliver the final paycheck via messenger.

They could also send the check by overnight delivery. "The cost of overnight mail is worth the ability to track and confirm delivery of the final paycheck," Hernández said.

Barsanti and Hernández both recommend adding an additional day of pay to cover waiting-time penalties if the check is sent by overnight mail on the day of the termination or if there is any doubt that the final paycheck will be delivered on time.

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