Keeping Pay Records Can Keep You Out of Trouble

Small to mid-size businesses are among the least likely to keep accurate payroll records. They are also least able to bear the cost of a wage and hour claim brought by a current or former employee. Proper attention to maintaining accurate records at the inception of the employment relationship can reduce or even prevent future, costly claims.

Small to mid-size businesses are among the least likely to keep accurate payroll records. They are also least able to bear the cost of a wage and hour claim brought by a current or former employee. Proper attention to maintaining accurate records at the inception of the employment relationship can reduce or even prevent future, costly claims.

The burden by statute is on the employer to maintain accurate payroll records. Pursuant to California Labor Code §226(a), every time an employee is paid wages, whether by check, in cash, or otherwise, the employee must be given a detachable part of the check or a separate writing showing:

1. Gross wages earned
2. Total hours worked (not required for salaried exempt employees)
3. The number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece rate basis
4. All deductions (all deductions made on written orders of the employee may be aggregated 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
8. The name and address of the legal entity that is the employer
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.

Potential sources of compensation for which accurate records must be kept include regular pay, overtime pay, non-discretionary bonuses and accrued vacation pay. Although there are some exceptions, almost all employees in California must be paid the minimum wage as required by state law. Effective January 1, 2002, the minimum wage in California is $6.75 per hour. Unless exempt, no employee shall be employed more than eight hours in any workday or more than 40 hours in any workweek unless he or she receives one and one-half times his or her regular rate of pay for all hours worked over eight hours in any workday and over 40 hours in the workweek. California Labor Code §1198.

Employers must also properly document the frequency and duration of meal and rest breaks. In California, an employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than thirty minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. California Labor Code §512. The rest period is based on the total hours worked daily and must be at the minimum rate of a net ten consecutive minutes for each four hour work period, or major fraction (i.e. more than two hours) thereof.

In California, most employees’ wages must be paid at least twice during each calendar month on the days designated in advance as regular paydays. The employer must establish a regular payday and is required to post a notice that shows the day, time and location of payment. California Labor Code §207.

Without proper employment records, the employer will likely be unable to defend a wage and hour claim brought by a current or former employee since it bears the burden of proof. California Labor Code §1174(d) requires all payroll records to be kept a minimum of two (2) years. However, the Statute of Limitations on wage and hour claims can be as long as four (4) years.

A wage and hour claim may be processed in one of two ways: (1) Administratively, through the Department of Industrial Relations (“DIR”), Division of Labor Standards Enforcement or (2) judicially, through the court system. An employee need not retain counsel to pursue an administrative claim, which can be initiated for free simply by the filing of a complaint with the DIR. Alternately, the employee may hire an attorney and pursue his or her claim in court. The incentive for this is the “one-way” attorneys’ fee entitlement for the lawyer if there is recovery of any sum. California Labor Code §1194(a).

The remedies available to an employee include recovery of the unpaid wages, a “waiting time” penalty calculated as an amount equal to the employee’s daily rate of pay for each day the wages remain unpaid, up to a maximum of thirty (30) calendar days, interest and attorneys’ fees. If an employer fails to provide an employee a meal period in accordance with an applicable IWC Order, the employer must pay one additional hour of pay at the employee’s regular rate of pay for each workday that the meal period is not provided. IWC Orders and California Labor Code §226.7. If an employer fails to provide an employee a rest period in accordance with an applicable IWC Order, the employer shall pay the employee one additional hour of pay at the employee’s regular rate of pay for each workday that the rest period is not provided. California Labor Code §226.7.

For compliance assistance pertaining to wage and hour laws, please contact Shannon Marie Jenkins Esq. of Tredway, Lumsdaine & Doyle, at (949) 756-0684.