Court Says California Pay Stubs Can List Overtime Premiums Separately

​An employer provided workers with wage statements that listed the total hours worked at the standard rate of pay and separately showed the hours for which workers earned an additional overtime premium of 0.5 times the standard rate. A California appeals court dismissed a claim asserting that the employer's practice violated state law.

Complying with California's wage statement rules can be complicated and technical. Section 226 of the California Labor Code requires employers to provide accurate, itemized wage statements showing "all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee."

Nonexempt employees in California must be paid 1.5 times their regular rate of pay for all hours worked beyond eight in a day and 40 in a workweek. In this case, an employee sued her employer based on its alleged failure to identify the correct rate of pay for overtime wages. The employer's wage statements listed premiums as 0.5 times (rather than 1.5 times) the regular rate of pay.

The employer contended that its wage statements complied with the statute because they showed the total hours worked, with their standard rate or rates, and the overtime hours worked, with their additional premium rate. The employer moved to have the case dismissed before trial. The trial court denied the motion, and the employer sought review in the California Court of Appeals.

The appeals court concluded that the trial court wrongly held that the employer's wage statements violated Section 226 and ruled that the lawsuit should be dismissed.

The primary purpose of the law is to ensure employees can easily determine whether their wages were correctly calculated, the appeals court noted. "While other formats may also be acceptable, given the complexities of determining overtime compensation in various contexts, the format adopted by [the employer] adequately conveys the information required by statute."

Interpretation of Section 226

California Labor Code Section 226 requires an employer to furnish to its employee an accurate, itemized statement in writing showing, among other things, all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee, the court first noted.

In interpreting Section 226, the court said, its primary job was to determine what the legislature intended when it passed the law. And in making this determination, the court's first task was to look to the words of the statute. Where a statutory term is not defined, it can be assumed that the legislature was referring to the conventional definition of that term, the court said.

In addition, statutes governing conditions of employment are to be construed broadly in favor of protecting employees, the court noted.  

The core purpose of Section 226 is to ensure an employer documents the basis of the employee compensation payments to assist the employee in determining whether the employee has been compensated properly, the court said.

The employer in this case argued that its wage statements showed all applicable hourly rates and the corresponding number of hours worked at each hourly rate because the rates and hours listed formed the basis for calculating overtime compensation. They were the applicable hourly rates contemplated by the statute.

The employee claimed that the wage statements omitted the overtime rate, 1.5 times the regular rate, and therefore did not include all applicable hourly rates or the corresponding number of hours worked at each hourly rate.

The appellate court agreed with the employer. The phrase "applicable hourly rates" is not defined in the statute, the court noted. Therefore, it would apply its plain and commonsense meaning, viewing the phrase in context and keeping in mind its statutory purpose.

The wage statements showed the applicable hourly rates in effect and the corresponding number of hours worked at each rate, the court said. In the wage statements, the applicable hourly rates were:

• The standard hourly rate determined by contract or other agreement between the employee and the employer.
• The overtime premium hourly rate, determined by statute, that must be added to the employee's standard wages to compensate the employee for working overtime.

These rates were plainly shown, along with the hours worked at each rate, the court said. While other formats may also be acceptable, given the complexities of determining overtime compensation in various contexts, the format adopted by the employer adequately conveyed the information required by statute. It also allowed employees to easily determine whether their wages were correctly calculated, which is the central purpose of Section 226, the court concluded.

General Atomics v. Superior Court, Calif. Ct. App., No. D078211 (May 28, 2021).

Professional Pointer: This decision shows that courts are not likely to find violations of the California rules regarding wage statements as long as the statements provide the information necessary for employees to check the accuracy of the wages they have received.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.