California Labor Code Section 226: Wage Statement Requirements & Penalties

California Labor Code Section 226 sets strict paystub requirements and exposes employers to lawsuits, PAGA penalties, and fees. Review wage statements for all nine items; third party payroll services do not shield companies from compliance mistakes.

By Douglas Wade, Attorney

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Table of Contents

1. Introduction

2. Types of Wage Statement Claims

3. Why Direct Violations Are Hard to Defend

4. Repercussions of wage statements that are not in compliance

5. Reasons why companies shouldn’t rely solely on payroll providers

Introduction

According to the state’s Labor Code section 226, a business is required to provide workers with an “accurate categorized statement in writing” that reflects at least nine clearly defined items either semimonthly or at the time of every wage payment. Often called wage statements or paystubs, these routine additions to nearly every paycheck appear straightforward enough that most workers or even the company may not give them much thought.

A common mistake involves reliance on a third-party payment service that creates wage statements regularly. Avoiding potentially expensive lawsuits for California firms requires careful adherence to Labor Code section 226 regulations, and blaming the payroll company as a defense is ineffective.

In California, claims pursuant to Labor Code section 226 continue to be a popular subject for litigation, both individually and—perhaps more importantly—representatively through class actions or actions brought under the state’s Private Attorneys General Act, where the fines can mount up rapidly.

Types of Wage Statement Claims

These claims usually fall into one of two categories: (1) an indirect case or (2) an immediate wage statement breach. The majority of these cases, at least during the pleading phase, will include both. Liability in a derivative lawsuit is based on the employer’s infraction of wage and hour laws (i.e., failing to pay for every hour worked or paying them at a wrong rate), which results in an inaccurate wage statement that contravenes Labor Code section 226 and is therefore subject to extra penalties. However, being a derivative claim, it also inevitably fails if no premise breaches are discovered.

By conducting internal compliance inspections and avoiding a naïve reliance on payroll providers, the second foundation for a claim pursuant to Labor Code section 226—which is a direct salary statement violation—can be avoided. The wage statement’s failure to meet any or all of the nine requirements outlined in Labor Code section 226 constitutes a direct violation and the grounds for culpability.

Why Direct Violations Are Hard to Defend

An actual breach is low-hanging fruit in a class or PAGA action since wage statements are often formatted the same for all employees. In this situation, it is very difficult to rebut direct wage statement allegations. Given that wage statements often follow the same style for every worker, a facial breach is low lying in a class action or PAGA suit, making it extremely challenging to defeat direct wage statement allegations in this situation.

There is currently disagreement among California courts over the possible influence of management in a PAGA action; nonetheless, since violations may be proven based on the appearance of the documents, which are typically fairly consistent among all employees, this kind of claim typically does not raise manageability concerns. Furthermore, according to subsection (e) of Labor Code section 226, courts have determined that an employee may seek civil fines under PAGA for violating this section without proving harm.

For several reasons, including avoiding expensive litigation, it goes without saying that California companies must ensure that they adhere to Labor Code section 226. To guarantee compliance, California employers must bear the following points in mind.

A wage statement needs to include the following:

In compliance with section 226 of the Labor Code, the following details must be included in the wage statement at the time of payment, either in writing or in an electronic copy:

Gross income received;
Total hours performed by the worker, unless subsection (j) permits an exemption;
If the worker is paid on a piece-rate schedule, the quantity of piece-rate units produced and any relevant piece rate;
All deductions, as long as they are combined and displayed as a single item and are made in response to the employee’s written requests;
Net income received;
Dates that are included in the time frame for which the worker gets compensated;
Only the final four digits of the worker’s social security number or a worker ID number that isn’t a social security number;
Both the employer’s name and address, as well as the address and name of the legal organization that hired the employer if the company is a farm labor contractor; and
With some further requirements for businesses of temporary services, every relevant hourly rate that was in place throughout the pay period, along with the number of hours the worker performed at each rate.

Despite the seeming simplicity of these standards, wage statement compliance is complicated by other pay categories, including differential pay, normal rate of payment calculations, compensation for illness, PTO/vacation pay, and rest and meal break premiums. Employers in California are required to conduct regular and uniform compliance checks.

Repercussions of wage statements that are not in compliance

In addition to any equitable relief, employees may be entitled to all real damages or fifty dollars for the first pay period during which an infraction occurs and one hundred dollars for each employee for every violation in a succeeding pay period, up to a maximum “aggregate fine” of $4000. Employees are also entitled to reimbursement for reasonable legal fees and expenses. Additionally, PAGA may impose civil fines on an employer who breaches Labor Code section 226. These amounts can build up rapidly in a PAGA or class action.

Reasons why companies shouldn’t rely solely on payroll providers

When it pertains to their workers’ wage statements, employers cannot and should not simply assume that the payroll provider has done it correctly. According to the California Labor Code, the payroll business cannot be relieved of the employer’s obligation to provide correct salary statements. Importantly, the California Supreme Court ruled in Goonewardene v. ADP (2019) that payroll vendors are not required to take reasonable steps to guarantee that wage orders and the California Labor Code are obeyed.

In order to assure compliance, businesses in California are therefore strongly encouraged to carefully examine their wage statements, whether or not they were produced by an external payroll provider, and go over the specific provisions of Labor Code section 226. It is essential to get this properly because even an apparently harmless mistake or extremely technical error can lead to expensive legal action, fines, and penalties that could have been prevented.

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