Paying Employees in California
California employers
need to be aware of several rules when paying their employees. While many
of these issues are familiar to employers, some -- such as check cashing
fees -- are just now coming to the attention of employers.
Timely Payment
The
California Labor Code governs when both exempt and non-exempt employees
must be paid.
Non-exempt
employees are required to be paid at least twice each calendar month,
although you can choose to pay weekly or bi-weekly. The days must be
designated in advance by the employer, and a notice must be posted
informing employees of the paydays. If payment is made on twice monthly
schedule, it must be as follows: work performed on the 1st through 15th
days of the month, must be paid by the 26th day of the same month; work
performed on the 16th through the end of the month, must be paid the 10th
day of the next month. (Labor Code 204.)
Exempt
executive, administrative, and professional employees of employers covered
under the FLSA may be paid once a month on or before the 26th day of the
month. The paycheck, however, must include the amount that will be earned
between the date of payment and the end of the month, even though it had
not yet been earned.
Deductions from Paychecks
Deductions
from wages are usually not allowed, with few exceptions. Many employers
have policies allowing them to deduct damages or debts from an employee's
wages. These policies are generally unlawful.
Employers
are not allowed to deduct for unpaid debts owed by the employee, even where
the employee has agreed in writing to reimburse the employer in full.
Damages or losses that result from the simple negligence or incompetence of
an employee may not be deducted from wages. Moreover, the cost of uniforms
and tools should not be deducted from an employee's wages, even if the
employee has consented in writing to such a deduction. Based on California case law,
such deductions are unlawful unless theft or culpable negligence can be
shown. (Kerrs Catering Service v. Dept.
of Industrial Relations, 57 Cal.2d 319 (1962); Barnhill v. Robert
Saunders & Co., 125 Cal.App.3d 1 (1981).)
There
is one limited circumstance when an employer can deduct damages or losses
from an employee's wages. Employers are allowed to deduct wages for damages
caused by an employee's gross negligence, dishonesty or willful misconduct.
The
burden in proving that the deduction is allowed is on the employer, and
failure to meet the burden may result in penalties. A better approach is to
file an action in small claims court to recover the loss, rather than to
make a deduction from wages.
Statement of Deductions
Paychecks
to employees must include an itemized statement that gives the following
information.
- Total
hours worked (except salaried exempt employees);
- Piece
rate units and applicable piece rate, if the employee is paid on a
piece rate basis;
- All
deductions, including taxes, disability insurance, and health and
welfare payments (deductions ordered by the employee may be aggregated
and shown as one item);
- Net
wages earned;
- The
inclusive dates of the pay period;
- Name
of the employee and Social Security number;
- Name
and address of employer (legal entity); and
- All
applicable hourly rates in effect during the pay period and the
corresponding number of hours worked at each hourly rate by the
employee.
Check Cashing Fees
California employers
are required by law to pay employees the correct amount of compensation.
Labor Code section 212 requires that payroll checks "be negotiable and
payable in cash, on demand, without discount."
Recently,
employers have been concerned regarding the impact of this Labor Code
section on check cashing fees charged by banks used to process their
payrolls. The state has begun to look at whether these fees charged by the
banks cause employers to violate California
law.
For
instance, since August of 2002, Bank of America has charged people who do
not have an account at the bank a fee of $5 if they want to cash a paycheck
issued by a Bank of America business client. Other banks are following in BofA's footsteps.
In
response to an article on this issue by David Lazarus in the San Francisco
Chronicle, the state Department of Industrial Relations (DIR) wrote that these
fees violate Labor Code section 212. Dean Fryer, a DIR spokesman told the
Chronicle, "It is clear that every employer who has allowed a fee to
be charged for cashing a paycheck is in violation of the labor code."
The
California Labor and Workforce Development agency is planning to ask the
Attorney General for a legal opinion clarifying whether the check cashing
fee imposed by the bank is a "discount" under Labor Code section
212, and whether federal law that allows banks to charge such fees preempts
state law. Last year, a federal appeals court ruled that banks are entitled
to charge such fees, even if counter to state law. The case involved a Texas payroll law similar to California's.
Fines
for violation of the law are $50 for the first violation. Subsequent
violations are punishable by a $100 fine, plus 25% of the amount deducted.
Many
individuals, especially in lower-paid jobs, rely on the employer's bank to
cash their payroll check. There are approximately 25 million employees who
do not have traditional banking relationships.
DIR
considers this issue one of its highest priorities, but until then
employers need to review their bank's practices. California employers should ensure that
their employees have a means to cash checks without a fee. For instance,
employers can negotiate with the bank to see if the fee can be waived for
the employee or provide in-house check cashing services.
Payroll Cards
A
novel approach to paying employees, involves the use of payroll cards.
These cards operate like a debit/ATM card. The worker is assigned a card
and each payday their wages show up as credit on the cards. The employee
can use the card to withdraw money from an ATM or as a debit card to pay
for groceries, gasoline or other retail items that accept the card. Visa
and Mastercard both offer payroll cards.
Employers
who choose to use payroll cards often save money. According to Visa, 4
million paychecks a year are lost and stole, costing U.S.
businesses $48 million a year to reissue them. Banks charge employers varying
fees for the cards. However, California
employers cannot pass the payroll fee on to the employee through a payroll
deduction under Labor Code section 212.
Conclusion
Employers
in California
need to pay strict attention to the laws relating to paying employees.
These laws have taken on added importance with the passage of the new
"sue your boss" law (Labor Code 2699) which creates a new private
right of action for employees and their attorneys to enforce virtually any
provision of the California Labor Code.
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