Going Paperless in California: Guidelines for Pay Stub Compliance

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This is the second in a three-part series of articles about California wage statement laws. This installment addresses recommended practices for businesses that provide workers with electronic pay stubs. Read the first part here and the third part here.

In a digital world, many employees no longer receive physical paychecks that they take to the bank to deposit—but California workers still must have free access to paper copies of their itemized wage statements.

California Labor Code Section 226(a) requires employers to include nine specific items on pay stubs, and the Healthy Workplace Healthy Family Act added paid-sick-leave accruals to the list.

Even if employers comply with all 10 elements, they can still find themselves in legal trouble if they don't make it easy for workers to access and print copies. If employees in California say they want their wage statements on paper, employers must provide hard copies, said Bruce Sarchet, an attorney with Littler in Sacramento. 

Written Statements

Under California law, pay statements must be issued in writing and deductions made from wages must be recorded "in ink or other indelible form." As more businesses began going paperless and employees opted to receive their pay by direct deposit, employers weren't clear on whether electronic pay stubs complied with the labor code.

Thus, in 2006, the California Department of Industrial Relations Division of Labor Standards Enforcement (DLSE) issued an opinion letter about the circumstances under which paperless statements would be compliant with state law.  

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

Essentially, the DLSE said, employees must be able to easily access electronic statements and convert them into hard copies at no expense to workers, Sarchet explained. The DLSE wrote that the employer's practices described in the letter were compliant because:

• Employees could elect to receive paper wage statements at any time.
  
• The wage statements contained all the information required under Labor Code Section 226(a) and were available on a secure website no later than the payday.
  
• Access to the website was controlled by unique employee identification numbers and confidential personal identification numbers.
  
• Employees could access their records at work using company computers or their own personal computers.
  
• Employees could print free copies of their electronic wage statements at work on printers that were close to their computers.
  

Employers must maintain wage statements electronically for at least three years and must make them available to active employees during that time. Former employees are entitled to free paper copies upon request.

The DLSE's guidance isn't binding on a court but it presents a pretty reasonable analysis of the factors that a court would use in deciding whether an employer's electronic system is compliant, said Christopher Ahearn, an attorney with Fisher Phillips in Irvine. In addition to giving employees unrestricted access to their wage statements and the option of having statements delivered in a paper format, employers should have security measures in place to protect employee information, he noted.

Record-Keeping Tips

Although the labor code states that employers must keep wage statement records for three years, Ahearn recommends retaining them for an additional year because the statute of limitations on state wage claims is four years.

Most wage and hour class actions include a claim for pay statement errors, which can result in significant penalties for employers even if the value of the actual wage claims is low, Ahearn said.

A big issue that comes up with electronic record-keeping systems is that when an employer goes into the system to pull wage statement data for a certain period—perhaps at the request of a plaintiff's attorney during litigation—the electronic data may appear differently than it did on the actual wage statement that was provided to the employee, he said. "Care needs to be taken when providing copies of wage documents to ensure that the copies are exact duplicates of what the employee actually received during the pay period." That way, an employer can readily show that it issued proper statements at the time the employee was paid.

He recommended reviewing the system with counsel. "A California employment attorney can identify pretty quickly if any problems need to be corrected," he said.

This was the second in a three-part series of articles on California wage statement laws. The first installment reviewed common pay stub errors that employers make. The next installment will examine the penalties employers may face for noncompliance.

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