California Law: Payroll

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In the anti-poverty group Oxfam’s “Best and Worst States to Work in America 2019” report, California landed at a strong number two (or number one on a technicality, as the District of Columbia – which isn’t really a state – took the top spot). In 2019, California payroll laws increased the minimum wage to $11, which again jumped to $12 in 2020. In the same manner, the state continues to make it easier for workers to join labor unions and enjoy relatively expansive worker protections.

This should come as no surprise for the famously progressive state, but of course that progress wouldn’t exist without a multitude of California payroll laws, which have continued to evolve and expand the rights and protections of workers when it comes to all sorts of payroll matters. No wonder some people call Cali the “Land of Sunshine and Opportunity.”

Basic Payroll Definitions

To understand California’s payroll laws, which are mostly detailed in the state’s Labor Code, it’s essential to understand the legal definitions of some commonly occurring payroll-related terms, particularly when it comes to wages and employees.

In California, the law defines wages as payment for “all amounts of labor performed by employees of every description” (Labor Code Section 200), whether that amount is fixed or determined by lengths of time, commission, by unit or other methods. So that means that wages include hourly pay, salaries, commissions and piece-work payments.

By California law, independent contractors are not employees. Employees receive wages, while independent contractors receive payments pursuant to a contract; these payments are not defined as wages.

California Payroll Laws: Pay Schedules

In the Golden State, the law demands that workers generally must be paid at least twice per month, and additionally, that your paycheck can’t wait forever. As per California Labor Code Section 207, any wages earned between the first and 15th day of the month must be paid to the employee no later than the 26th day of that same month; employers must pay money earned from the 16th to the last day of the month no later than the 10th day of the following month.

Exceptions to the bi-monthly rule include executive, administrative and professional employees, who can legally be paid just once per month. Even so, these categories of employees must be paid by the 26th day of the month, and that paycheck must include their entire monthly salary. On the other end of the spectrum, farm labor contractors require payment every week.

Of course, weekly, bi-weekly and other sorts of pay schedules are legal in the state according to Labor Code Section 204, but as a blanket rule, employers must pay their workers for the work they performed within seven days after the end of the pay period. In any case, employees have the right to know the time, the date and the place at which they can expect to be paid – employers must maintain a regular payday and give employees prior notice if their pay period changes.

If the regularly scheduled payday falls on a holiday on which the business is closed, employees must receive their paychecks on the following business day. Employers may pay via cash, check or, if the employee consents, via direct deposit, as detailed in the Labor Code Sections 212 and 213.

California Payroll Laws: Overtime

Of course, California payroll laws for overtime kick in when employees punch that clock extra hard. Overtime takes effect when nonexempt employees work beyond 8 hours in a single workday for up to 12 hours, or for more than 40 hours in one workweek. Overtime amounts to 1.5 times the employee’s usual pay (and in some cases, double time takes effect past the 12-hour threshold).

Per state law, employers must pay overtime wages no later than the payday for the next regular pay period that follows the period in which those overtime wages were earned. Only overtime wages can wait till the next regular pay period; straight time wages are still due as normal.

Employers do have a little bit flexibility here, as they can still comply with the laws laid out in Labor Code Section 226(a) as long as they record the overtime hours on the stub for the payment received on the employee’s next regular pay period, in cases in which they failed to record those extra hours on the initial overtime stub.

California Payroll Law: Deductions

By the letter of the law, employers are able to withhold some common form of deductions from wages. These legal deductions include those required by state or federal law, such as federal income tax, Social Security, Medicare, federal unemployment and supplemental income taxes. Also allowed are those deductions covering insurance premiums, benefit plans, other rebate programs that have been explicitly authorized by the employee, and those that cover health and pension contributions explicitly authorized by a collective bargaining agreement.

In protection of workers, the California Labor Code does not allow for the following types of deductions:

  • Any deductions taken from gratuities earned.
  • The cost of pre-employment medical or physical exams mandated as conditions of employment.
  • Numerous work expenses, such as required work uniforms (unless the worker consents to have the uniform cost deducted from their last paycheck if the uniform isn’t returned); tools required for the job (unless the employee earns at least twice the minimum wage); photographs required by the employer (for ID badges and such); and bonds required of employees and applicants.
  • Any other expenses incurred as a direct result of the employee’s work duties.

Likewise, employers can’t deduct from an employee’s wages on account of cash shortages, loss of property or property damage unless the employer can prove in writing that these losses were caused by dishonest, willful or negligent actions on behalf of the employee.

For the Payroll Department: Pay Stubs

California state law also creates some rules for the sort of information that employees need to receive via an itemized statement with every single paycheck.

This info can show up in a separate document or on a pay stub, but in either case, it needs to include:

  • The employee’s full name.
  • The last four digits of the employee’s Social Security number or their employee identification number (Fun fact: it’s actually illegal in California to print an employee’s entire Social Security number on their pay stub).
  • The full name and address of the employer.
  • The exact hourly rates effective during the pay period.
  • Total hours worked during the pay period (unless the employee is salaried).
  • Total gross wages for the pay period.
  • Unit numbers and rate for any piece work performed, if applicable.
  • Any and all deductions withheld.
  • The net pay amount for the pay period.
  • The dates included in the pay period.

Employers who don’t provide pay stubs to employees can face a civil penalty of $50 for the first stub-less pay period. That fine goes up to $100 for each period after that and can eventually accrue fines of up to $4,000 per employee.

For the Payroll Department: Record Keeping

Every single employer who does business in the state of California is required to maintain detailed payroll records for each of its employees, per Labor Code Section 226. State law obligates the employer to make these records available to employees upon request, too. Requested records should be made available as soon as reasonably possible and absolutely no later than 21 days from the request; otherwise, they incur a $750 penalty.

Of course, California payroll departments need to maintain and file federal tax forms, such as Form 941, the Employer’s Quarterly Tax Return. Summaries of employee payroll information will also need to be issued via federal forms such as W-2 Wage and Tax Statements for employees, 1099 forms for independent contractors, and Form W-4 for employee withholding. To ensure that these legal bookkeeping requirements are met, payroll company Namely estimated that in 2017, nearly 60 percent of nationwide companies with 500 or less employees use a third-party vendor to administer their payroll.

Payroll Complaints and Disputes

In the event that an employer does not pay an employee on time, the State of California’s Department of Industrial Relations advises employees to contact the Division of Labor Standards Enforcement (DLSE) and file a complaint. The DLSE helps workers convey the law to the employer, who has a chance to correct payroll mistakes before incurring the misdemeanor charges that come with failing to pay on the designated pay date.

In the meantime, California Labor Code Section 206 has good news for employees engaged in wage disputes with their employers. Per this bit of the code, employees must unconditionally pay all wages conceded to be due to the employee, and that employee may keep that disputed amount until the situation is resolved.

Leaving the Payroll: Final Wages

California’s payroll laws have the employee’s back right until they leave their employer, as evidenced by state laws covering the receipt of a worker’s final paycheck.

Here’s a silver lining to a bad workday: Any employee who is terminated, laid off, fired or involuntarily separated from their job has the right to receive their final paycheck immediately. That’s right – on the spot, before leaving the building. It is illegal for the employer to wait until the next scheduled pay date, or even the next day, to pay out the money due to the terminated employee. But it gets better. That final, immediately available paycheck must include all accrued paid time off and vacation time.

Employees who quit with less than 72 hours’ worth of notice are entitled to their final paycheck within 72 hours. Employees who give a minimum of 72 hours’ notice are entitled to that final paycheck on their last day of work. In all cases, a waiting time penalty ensures that for every day the employer is late with the final paycheck, the employee receives a full day’s average wage. For some categories of workers – such as film crew and actors, seasonal produce employees, oil drillers and live venue workers – the required final paycheck time frame varies, but the very latest acceptable receipt is usually the next payroll period.

No one enjoys getting fired, but there are definitely worse ways to get laid off than walking out of the building with a paycheck right into 75-degree weather.

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About the Author

As a freelance writer and small business owner with a decade of experience, Dan has contributed legal- and finance-oriented content to diverse sources including Chron, Fortune, Zacks.com, Motley Fool and MSN Money, among others.