Chapter 22:
Payment of Wages

Updated as of January 2007

The provisions of the California Labor Code (CLC) regarding the payment of wages are summarized in three parts: Regular Pay, Termination Pay and Pay Stub Requirements.

 

REGULAR PAY

Designation of Paydays, Notice and Posting

Every employer must designate regular paydays in advance, and must conspicuously post a notice specifying the regular paydays, time and place of payment (CLC Sections 204, 207).


Time Periods

Wages are due and payable twice per calendar month for most employees. Labor performed between the 1st and 15th days, inclusive, must be paid out between the 16th and 26th day of that month; labor performed between the 16th and last day, inclusive, of the month must be paid out between the 1st and 10th day of the following month.

Salaried executive, administrative and professional exempt employees covered by the Fair Labor Standards Act (FLSA) may be paid an entire month's wages at once, no later than the 26th day of the month in which the labor is performed. Salaried exempt individuals not covered by the FLSA are subject to different rules. Weekly or biweekly payroll periods are permitted if wages are paid within seven days following the close of the payroll period. Employees covered by a collective bargaining agreement (CBA) that provides different pay arrangements will be governed by those arrangements. Overtime must be paid on or before the next regular payday (CLC Section 204).

Special rules apply to:

  • employees of licensed vehicle dealers receiving commissions (CLC Section 204.1);
  • domestic service workers who are boarded and lodged by an employer, employees engaged in viticulture, horticulture, stock or poultry raising, and workers employed by a farm labor contractor (CLC Section 205);
  • agricultural workers (CLC Section 205.5); and
  • employees receiving payment of gratuities made by patrons using a credit card (CLC Section 351).

Wages may be paid at more frequent intervals than those listed above; however, these provisions may not be contravened or set aside by any private agreement (CLC Section 219).

When a regular payday falls on a holiday, the Division of Labor Standards Enforcement (DLSE) takes the position that paying employees on the first business day after the holiday fulfills the timely payment obligation. California Civil Code Section 7 defines a holiday as every Sunday and such other days as are specified or provided for as holidays in Sections 6700 et seq. of the California Government Code, which include:

  • January 1st;
  • the third Monday in January, known as "Dr.Martin Luther King, Jr. Day";
  • February 12th, known as "Lincoln Day";
  • the third Monday in February (Presidents' Day);
  • March 31st known as "Cesar Chavez Day";
  • the last Monday in May (Memorial Day);
  • July 4th;
  • the first Monday in September (Labor Day);
  • September 9th, known as "Admission Day";
  • the second Monday in October, known as "Columbus Day";
  • November 11th, known as "Veterans Day";
  • December 25th;
  • Good Friday from 12 noon until 3 p.m.; and
  • every day appointed by the President or Governor for a public fast, thanksgiving, or holiday.

Note: Employers are not required to provide holiday or premium pay to employees who work holidays, unless as required by wage orders.

A violation of the above requirements is punishable as a misdemeanor. An employer is also subject to civil penalties if it:

  • fails to pay wages in accordance with the above time periods;
  • has the ability to pay and willfully refuses to pay after demand has been made or falsely denies the amount or validity of payment, with intent to secure a discount or harass, hinder or defraud an employee;
  • collects or receives any part of wages from an employee after payment;
  • withholds wages established by a collective bargaining agreement; or
  • secretly pays a wage lower than established by statute or contract.

The penalty amounts are $50 per employee for an initial violation, and $100 per employee plus 25% of the amount unlawfully withheld for any subsequent violation, or any willful or intentional violation. Each civil penalty is in addition to and independent of any other penalty provided. All money recovered will be paid into the State Treasury (CLC Sections 210, 215, 225.5).

An employer or other person acting on behalf of an employer that underpays an employee or violates an overtime pay provision or any provision in an Industrial Welfare Commission (IWC) wage order that regulates hours and days of work is also subject to a civil penalty that is payable to the affected employee. For an initial violation, the penalty is $50 per underpaid employee per pay period plus an amount sufficient to recover the unpaid wages. Each subsequent violation is penalized at $100 per underpaid employee per pay period plus an amount sufficient to recover the unpaid wages (CLC Section 558).


Method of Payment

The employer may issue as payment cash, a check or any other instrument that is negotiable and payable in cash, on demand, without discount, at some established place of business in the state with the name and address of the business on the instrument. The maker or drawer must have sufficient funds for payment at the time the instrument is issued and for at least 30 days thereafter. Payment in scrip, coupon, or other medium redeemable in merchandise is prohibited. Direct deposit is permissible provided an employee has voluntarily authorized the deposit at a financial institution of the employee's choice (CLC Sections 212, 213).

A violation of the above requirements is punishable as a misdemeanor and is also subject to the aforementioned civil penalty payable to the California State Treasury. Additionally, if an employer pays any wages or fringe benefits with a check, draft or voucher that is dishonored within 30 days of receipt by the employee, those wages or fringe benefits shall continue as a penalty from the due date, at the same rate, until paid or an action is commenced, to a maximum of 30 calendar days. This penalty will not apply if an employer can prove to the Labor Commissioner or in court that the violation was unintentional (CLC Sections 203.1, 215, 225.5).

 

TERMINATION PAY

Wages Due

Wages due include any earned but unpaid wages - including earned commissions - and vested but unused vacation, unless otherwise provided by a CBA. Accrued personal or floating holidays that are interchangeable with vacation days and hence have attained vacation status must also be paid as per the DLSE's enforcement policies.

These benefits must be paid at the employee's final rate of pay. Personal days subject to usage restrictions need not be paid, such as a personal day to be taken on a birthday or another designated day. There are no mandatory severance pay requirements. Expenses are not included (CLC Sections 201, 227.3).


Time Periods

The rules governing regular paydays are not applicable at termination of employment.

Discharged Employees: A discharged employee must be paid all earned wages immediately (CLC Section 201).

Laid-off Employees: The DLSE has issued an opinion letter regarding facility shutdowns and lay-offs, and has historically taken the position that employees who are laid-off without a specified return date of 10 days or less are considered discharged and must be paid all wages immediately.

Resigning Employees: A resigning employee who provides 72 hours of notice or more must be paid at the time of quitting. If an employee quits without giving notice, an employer must make payment within 72 hours of the employee quitting. The 72-hour period is measured by calendar (not business) days and therefore includes week-ends (CLC Section 202).

Special rules apply to: certain seasonal employees (CLC Section 201), motion picture employees (CLC Section 201.5) and oil drilling employees (CLC Section 201.7).


Place and Manner of Payment

An employee who is discharged must be paid at the place of discharge. An employee who resigns must be paid at the office or agency of the employer in the county where the employee worked (CLC Section 208). An employee who quits without giving a 72-hour notice may be paid by mail upon the employee's request and designation of a mailing address. It is strongly recommended that an employer obtain the employee's request in writing. The date of mailing is the date of payment for purposes of the 72-hour requirement (CLC Section 202).

When an employee is discharged or quits, any voluntary authorization for direct deposit is deemed terminated (CLC Section 213); therefore the employee must be either given or mailed a “live” check, as per the provisions noted above.


Penalties

Waiting Time Penalties: If an employer willfully fails to pay any wages of an employee who is discharged or quits, waiting time penalties may be assessed. The penalties are the equivalent of the employee's per diem wage rate, at the rate in effect when payment was due, and accrue thereafter for each calendar day the wages remain unpaid or until an action is commenced. The penalties shall not continue beyond 30 days. In other words, the calculation constitutes an employee's daily wage rate multiplied by thirty days, or the equivalent of six weeks of pay. Additionally, a terminated employee cannot increase the amount owed to him by avoiding the employer or refusing to receive payment of wages fully tendered to him (CLC Section 203).

A violation is regarded as “willful” when an employer intentionally fails to pay wages to an employee when those wages are due. A “good faith dispute” that any wages are due will preclude an award of waiting time penalties to an employee. A good faith dispute occurs when an employer presents a defense that, if successful, would preclude any recovery by the employee. Consequentially, an employer that can show a good faith belief that wages were not owed may prevail in a claim for waiting time penalties, even if it is unsuccessful with the employee's wage claim (Title 8, California Code of Regulations, Section 13520).

Penalty for Dishonored Check: As of January 1, 2001, if an employer pays any wages or fringe benefits with a check, draft or voucher that is dishonored within 30 days of receipt by the employee, those wages or fringe benefits will continue as a penalty from the due date, at the rate in effect when payment was due, until paid or an action is commenced. The penalties shall not continue beyond 30 calendar days. This penalty will not apply if an employer can satisfy the Labor Commissioner or court that the violation was unintentional (CLC Section 203.1).

 

PAY STUB REQUIREMENTS

Every employer must provide each employee an itemized statement, either semi-monthly or at the time wages are paid ( i.e. every payday), containing specific information. Recent legislation amended the itemized statement requirements. As of January 1, 2001, the statute requires employers to provide an itemized statement - a pay stub - showing:

  1. gross wages earned;
  2. total hours worked, except salary exempt employees;
  3. the number of piece-rate units earned and any applicable piece rate for employees paid on a piece-rate basis;
  4. all deductions, provided that all deductions made on written orders of the employee may be totaled and shown as one item;
  5. net wages earned;
  6. the inclusive dates of the period for which the employee is paid;
  7. the name of the employee and his or her social security number (effective January 1, 2008 only the last 4 digits may be used);
  8. the name and address of the legal entity that is the employer; and
  9. all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.

Additionally, current and former employees have a right to inspect and copy their payroll records. Employers must comply with an employee's oral or written request as soon as is feasible, and no later than 21 calendar days from the date of request. An employer may designate the person to whom such requests should be directed. Also, an employer can charge for the actual cost of making copies.

The statue does not apply to the state, or any city, county, city and county, district, or any other governmental entity.

An employee that suffers an injury as a result of the employer's knowing and intentional failure to comply with the above requirements will be entitled to recover the greater of all actual damages, or $50 for the initial pay period in which a violation occurs and $100 for each violation in a subsequent pay period not to exceed a maximum penalty of $4,000. The employee will also be entitled to an award of costs and reasonable attorneys' fees (CLC Section 226).

If an employer fails to allow a current or former employee to inspect or copy records within 21 calendar days, the employee or the Labor Commissioner may recover a $750 penalty from the employer.

An employee may also obtain a court order (injunction) to ensure compliance, and is entitled to recover costs and reasonable attorney's fees.

In addition to any other penalty provided by law, an employer that violates the above itemized statement requirements is subject to a civil penalty of $250 per employee for each initial violation, and $1,000 per employee for each subsequent violation. The Labor Commissioner will take into consideration whether the violation was inadvertent, and may decide not to penalize an employer for a first violation if the violation was unintentional or due to a clerical error (CLC Section 226.3).

Additional punishment will be imposed upon an employer that knowingly and intentionally violates the provisions of Section 226, or any officer, agent, employee or other person who has the control or pays the wages of any employee, who knowingly and intentionally aids or participates in the violation of the itemized statement provisions. Such person is guilty of a misdemeanor, and upon conviction, shall be fined a maximum of $1,000, be imprisoned up to one year, or both at the court's discretion (CLC Section 226.6).

Electronic Pay Stub Rules

With the advent of computers, the ever-increasing technology and the growing popularity of the internet, employers have become more and more interested in a paperless way of doing business. In an Opinion Letter dated December 4, 2002, the Division of Labor Standards Enforcement (DLSE) reaffirmed that a pay stub delivered electronically would comply with California law if specific conditions were met. Those requirements are outlined below.

Elective Program: As some employees may be hesitant to use computers, worry about the privacy of electronic data, or simply prefer paper pay stubs, the DLSE requires that electronic delivery be voluntary, not mandatory.

Electronically Delivered Pay Stubs: For those who prefer to have electronic pay stubs, the employer must devise a system that would depict each employee’s paycheck electronically. The employer may delegate this design to a payroll company; however, the employer would retain ultimate responsibility for ensuring compliance with the law. The electronic reproduction must be available from an internet web site which is managed by the payroll company as a service to its clients.

Data Security, Employee Access and Privacy of Information: The proposal accepted by the DLSE’s Opinion Letter provided that “…the web site would be secure using industry standard security and encryption technology. Employee access would be controlled through the use of unique employee identification and confidential personal identification numbers. Firewalls would be implemented to prevent unauthorized access to this information.”

Regarding employee access, the approved proposal “offered access to the web site using properly configured web browsers through terminals located at the work site and from home computers with configuration being made available to employees to allow access. The service would be available 24/7 with the exception of occasional downtime to permit standard system maintenance.” At the workplace, employees “would have access to either an individual or network printer at reasonable hours throughout the day with no more than a minimal delay to enable each employee to print the electronic check/paystub image at no cost to the employee.” The DLSE did not specify what would be considered an acceptable “minimum delay”.

The Opinion Letter also stated that each employee need not have his/her own personal computer. If a network printer is to be used to print the data, “the printer must be secure so as to prevent others from printing the employee's personal data and the employee must be situated close enough to the network printer to eliminate any risk that the data, once printed, can be taken by someone else.” The DLSE did not stipulate what distance would be deemed “close enough”.

Data Availability: The proposal allowed by the DLSE provided that the electronic pay stub information would be available to employees for downloading and printing for a minimum of three (3) years, as required by CLC Section 226(a).

DLSE Approval: Lastly, while the DLSE affirmed that it would approve any proposition that meets the provisions delineated above, it also maintained that every plan has subtle distinctions or variations. Thus “the Labor Commissioner must insist that any employer proposing to use new technology must first seek specific DLSE approval before instituting the program in California. In view of the many nuances, blanket approvals are not possible.”

 

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