One of the most complicated components of HR administration is compliance. The convergence of local, state, and federal laws creates an intense, dynamic, and ever-changing tsunami of regulatory requirements. A perfect example of this is California Labor Code § 226(a). In California, employees have a legal right (meaning that your business has a legal requirement) to an accurate, itemized wage statement for every processed paycheck.
Failure to deliver this accurate wage statement will result in fines, including:
Up to $1,000 per employee for failure to provide wage statements
Up to $4,000 per employee for providing inaccurate wage statements
These nuances are part of the reason that hundreds of thousands of small and mid-market businesses outsource payroll to a trusted HR partner. Trying to tiptoe around these compliance headaches can be nightmare-inducing. Let's look at every detail you need to include on itemized wage statements in the state of California.
1. PAYMENT PERIOD
All wage statements must contain the payment period (i.e., the range of dates for payment) and list the issue date for the paycheck. You must, by law, have at least two payment periods per month in California.
2. GROSS WAGES
Every wage statement must also include an employee's gross pay before deductions. The term "wage" is relatively broad in California. Not only does wage include salary, hourly rates, commission, and piece-rate payments, but it also includes benefits (e.g., sick pay, vacation days, etc.).
3. ITEMIZED DEDUCTIONS
Any itemized deductions must also be included in the wage statement. Remember, there are specific deductions required by law. Mandatory deductions include:
Federal income tax
Any local taxes
Social security taxes
In addition, there are many voluntary deductions that SMBs take out of employee paychecks, including:
Any other itemized deductions should also be included on this list.
4. NET WAGES
The net wage is the gross wage minus the itemized deductions. In other words, this is the amount of money your employees are taking home during this payment period.
5. TOTAL HOURS
For hourly employees, you need to include the total hours worked in a pay period. There are some nuanced situations where employees are exempt from this requirement, such as salaried employees.
6. APPLICABLE HOURLY RATES
You must include the hourly rate-of-pay for employees in your wage statement/pay stub. It's important to note that any raises or position changes must be accounted for in this area. So, if an employee was promoted or given a raise during this pay period, you must include the hours worked from their previous position and their hours worked from their new position.
7. EMPLOYER'S NAME & ADDRESS
The name of your business and your address must be listed on the wage statement.
8. EMPLOYEES' NAME & EMPLOYEE NUMBER OR SSN
Wage statements must include the employee's full legal name and either their employee identification number or the last four digits of their social security number.
9. ACCRUED PAID SICK LEAVE
Each wage statement must also include the number of sick days and vacation days an employee has left. You can also technically supply this in another written document each payday, but that tends to be riskier — since it's easy to forget handing out a second document each pay period. If you have unlimited vacation days, you can simply write "unlimited."
Remember, many areas in California have local sick pay ordinances, and you may have specific record-keeping requirements to meet those ordinances.
Some Important Notes
Let's cover a few critical components of wage statement rules and guidelines that you must follow in California.
You must keep copies of wage statements for a period of at least 3 years for each employee.
Employees have the right to ask for (and receive) past wage statements.
You must provide wage statements at least semi-monthly.
Temp employees have unique rules, and you should touch base with your outsourced HR partner to help you deal with any temp workers.
Piece-rate employees also have unique rules. Again, touch base with your outsourced HR partner.
There are a variety of exceptions and exemptions to these rules.
Wage Requirements Are Complicated
California labor laws are vast, complicated, and incredibly nuanced. Even when dealing with something as simple as pay stubs, the sheer scope of California Labor Law is staggering. Technically, wage statements must include the 9 components listed above. But the exact nature of the requirements varies by industry, employee type, and business structure. In addition, you must also comply with federal wage statement requirements and any local ordinances.
Here's the problem: small businesses make payroll mistakes. According to the IRS, 40 percent of SMBs face fines due to payroll tax errors. When payroll taxes go wrong, your wage statements are often incorrect. This can lead to stacked fines that add a significant cost to your business. Professional Employer Organizations (PEOs) can help you eliminate costly payroll errors. Not only will your PEO take over many of your payroll responsibilities, but they assume liability for your payroll accuracy.
As a business owner, you shouldn't be focusing on the intricate nature of California's Labor Laws; you should be focused on growing your business. By partnering with a PEO, you aren't just eliminating payroll pain points and reducing your risk burden. You're freeing up time to focus on what really matters — growing your business.
To learn more about small business payroll administration and other HR topics, follow our blog.