Employers in California know payroll can be particularly troublesome. Attorneys representing employees routinely file lawsuits and PAGA actions based on inaccurate or incomplete pay stubs. I previously discussed the ease with which employees can bring PAGA actions for unintentional pay stub violations that cause no harm. The Second Appellate District came out with a rare win for employers trying to handle pay stubs correctly.
Pay Stub Claims
In Canales v. Wells Fargo Bank, N.A., the company paid non-exempt employees a monthly, quarterly and/or annual bonus. The employees earned the bonus throughout the month/quarter/year. When paying the bonus Wells Fargo recalculated and paid overtime owed on the bonus. Wells Fargo issued pay stubs with the bonus listing the “incremental additional overtime paid to the employee for overtime hours worked during the bonus period.” No hourly rates or hours worked were identified on the pay stubs.
Additionally, in some situations when an employee was terminated, payroll would issue a cashier’s check immediately for all wages earned. Payroll mailed the pay stub the following day.
Former employees sued claiming:
- The pay stubs violated Labor Code section 226(a)(9) because it did not list “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee” and
- The pay stubs mailed the day after termination violated Labor Code section 226(a) which requires pay stubs to be provided “semimonthly or at the time of each payment of wages.”
In the published portion of the decision, the court rejected both claims.
Bonus Pay Stub Did Not Have to List All Hours and Rates When the Bonus was a Supplement to Previously Paid Hours
Wells Fargo argued there were no “applicable hourly rates in effect during the pay period” that corresponded to bonus payments. Therefore, defendant did not have to provide such information on the pay stub.
The court discussed “the nature of nondiscretionary bonuses and how they relate to overtime pay under the Labor Code.”
The court confirmed, “nondiscretionary bonuses are considered part of the ‘regular rate of pay’.” The court also confirmed an employer must “allocate the bonus over the period in which it was earned” in order to calculate overtime pay. Hourly employees earn a quarterly bonus throughout the quarter. If the employee worked some overtime hours to earn the bonus, the employee is entitled to overtime premium pay on the bonus. The employer must divide the bonus by the total hours worked to calculate the “regular rate of pay” on the bonus. The employee is then entitled to an additional 0.5 times the regular rate of pay for the overtime hours.
The court concluded that the overtime on the bonus:
represented additional wages that were earned as overtime pay based on nondiscretionary bonuses being spread over the hours worked during the bonus period. Moreover, based on how OverTimePay-Override was calculated, the overtime hours were worked in previous pay periods for which employees had already received their standard overtime pay. The itemized wage statement issued by an employer need only provide the applicable hourly rates and the corresponding number of hours worked “in effect during the pay period.” In other words, the employer need only identify on the wage statement the hourly rate in effect during the pay period for which the employee was currently being paid, and the corresponding hours worked.
It is important to note that the court’s conclusion is based solely on how the bonus plan worked in this instance. Different bonus plans–such as weekly bonuses–would be treated differently. The case will be useful to employers that pay monthly, quarterly or annual bonuses provided the employees previously received pay stubs showing the hours worked and rates paid during the pay period.
Final Pay Stub Can be Mailed to Employees, as Long as it is Furnished at Least Semi-Monthly
Defendant contended it furnished the pay stub as required under section 226 by mailing it to the terminated employee’s last known address either the same day or the next day. Plaintiffs asked the court to follow the Labor Commissioner’s manual where it said:
“[a] California employer must furnish a statement showing the following information to each employee at the time of payment of wages (or at least semimonthly, whichever occurs first),” and section 14.1.2, which provides, “[s]ection 226 . . . sets out the employer’s responsibilities in connection with the wage statement which must accompany the check or cash payment to the employee.”
The court agreed with the employer. The court noted the Labor Code requires the pay stub to be provided at least semi-monthly or at the time the wages are provided. The legislature did not include the “whichever is first,” language cited by the Labor Commissioner.
This could result in interesting situations. For example, an employer could pay an employee every week but only provide pay stubs twice a month. I have no idea why an employer would do that, but employers do strange things sometimes.
Canales v. Wells Fargo Bank, N.A. represents a rare win in the wage and hour arena. I don’t know that the cases will result in fewer lawsuits. It will hopefully provide guidance to employers and employees regarding some of the pay stub issues employers face.
If you have questions about your pay stubs or your pay practices, Robert Nuddleman has been representing employers and employers in wage and hour matters for over two decades. Contact the Nuddleman Law Firm, P.C. today for a reduced rate consultation.
Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.
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