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Non-Compliant Wage Statements are a Big Target in Employment Lawsuits

Posted by Landegger & Verano on September 25, 2025

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In California, failure to provide employees with compliant wage statements (i.e., pay stubs or itemized statements) opens the door for a legal claim against your business. Noncompliance carries significant statutory penalties, litigation risk, and exposure under California’s Private Attorney General’s Act (PAGA). This article breaks down key issues and information to ensure your wage statements are compliant and reduce litigation risk to your business.

Legal Framework: Statutory Requirements & Standards

Under California Labor Code § 226(a), every employer must furnish to its employees, with each payment of wages (or at least semi‑monthly or each pay period), an “itemized wage statement” that accurately reflects certain mandated data. These statements must also be retained by the employer for at least three years. The mandatory components are:

  1. Gross wages earned
  2. Total hours worked (for nonexempt employees)
  3. The number of piece‑rate units earned and applicable piece rates (if the employee is paid on a piece‑rate basis)
  4. All deductions (taxes, benefit contributions, wage garnishments, uniform deductions, etc.)
  5. Net wages earned
  6. The inclusive dates of the pay period (start and end)
  7. The employee’s name and an identifying number (e.g. last four of SSN or employee ID)
  8. The employer’s name and address
  9. All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.

The statement must be “current and accurate” so that the employee can “promptly and easily determine from the statement alone” the amounts for gross wages, net wages, deductions, hours worked, and wage rates.

Penalties

Penalties for failing to provide compliant wage statements can rack up quickly, particularly for representative actions (Class Action or PAGA).

Statutory Penalties:

If an employer fails to provide a compliant wage statement, and an employee “suffers injury as a result of a knowing and intentional failure,” the employee may recover:

  • $50 for the initial pay period in which a violation occurs
  • $100 for each subsequent pay period
  • A maximum (aggregate) of $4,000 per employee

Additionally, the employee may recover costs and reasonable attorney’s fees if they prevail.

Employers may also face administrative civil penalties, which can be $250 per employee for the initial citation and $1,000 per employee for subsequent violations.

Intersection with Other Labor Code Provisions

Missed-break premium pay and other compensation that constitutes “wages” must be listed on the wage statement (if owed). Omission or misclassification of wages (or overtime, bonuses, missed break pay) may give rise to derivative ‘waiting time’ penalties.

Proper Calculation of the Regular Rate of Pay & How It Affects Wage Statements

  • A common area of dispute is how to compute the regular rate of pay, because this affects overtime, premium pay, bonuses, and other compensable pay. During litigation or an audit, wage statements will be scrutinized in light of faithful adherence to the regular rate law.

Regular Rate of Pay: Key Principles

  1. Definition and Scope
    The “regular rate of pay” is the hourly rate that includes all forms of compensation that are not excludable.
  2. Inclusions and Exclusions
    Compensations that must be included in the regular rate generally include nondiscretionary bonuses, shift premiums, and other forms of incentive pay pro rata. Exclusions may include discretionary bonuses, certain fringe benefits, gifts, and reimbursements.
  3. Blended Rates
    When an employee works multiple rates in a pay period (e.g., shift differential, overtime, holiday premium), the employer may compute a “weighted average” regular rate for the ordinary straight time portion of hours to allocate bonuses.
  4. Allocating Premiums
    Once the regular rate is established, overtime or premium pay is computed (e.g. 1.5×, double time) and added appropriately. Employers must ensure that the wage statement reflects each hourly rate and the number of hours worked at each rate.

Steps to Achieve and Maintain Compliance

Here is a practical road map for employers to become compliant with California wage‑statement obligations.

  1. Adopt a Compliant Template
    • Ensure your wage statement includes all nine elements under § 226(a).
    • In multi-rate situations, break out each rate and the hours worked at each rate.
    • If piece-rate pay or commissions is involved, include the number of units, unit rate, and how gross wages were computed.
  2. Integrate with Payroll / HRIS Systems
    • Choose payroll software capable of generating legally compliant pay stubs.
    • Configure default deductions, bonus disbursements, and multi-rate coding to flow automatically.
  3. Conduct Periodic Audits / Quality Checks
    • Sample wage statements; verifying all required fields are present and accurate.
    • Test whether employees can, from the statements alone, reliably compute gross, net, deductions, and rates.
    • Compare wage statements against internal payroll ledgers to catch discrepancies.
  4. Document Reasonable, Good-Faith Decisions
    Document that wage statement rules were analyzed, guidance was sought (legal or regulatory), or reasonable judgments were made.
  5. Train Payroll / HR Staff
    • Educate staff and vendors about California’s § 226 requirements.
    • Make sure that any manual payroll adjustments (e.g., bonuses, corrections) are always reflected properly on wage statements.
  6. Respond Promptly to Employee Requests
        • If an employee requests copies of wage statements, provide them within 21 calendar days.
        • Keep an accessible archive for at least three years.
        • Log and document such requests and the response, in case of a later dispute.
  7. Remediate Known Defects (“Cure”)
    • If you discover an omission or defect, promptly correct it by issuing amended or supplemental statements.
  8. Engage Legal Counsel or Wage-Hour Experts
    • Before rolling out template changes, have counsel review for compliance risk.
    • In high-risk industries (retail, hospitality, commissioned sales), periodic third-party audits may be prudent.

Maintaining Compliant Wage Statements Is A Vital Defense Against Costly Labor & Employment Litigation

In California’s aggressively litigated and enforced wage-law environment, compliant wage statements are a front-line defense against wage & hour litigation. Taking preventative action now can save significant legal and financial consequences later.

 

For consultation on wage statement compliance, please contact CEA Partner Landegger Verano, APC; ‘The Employer’s Lawyers’: Luiza Manuelian, Esq. at luiza@landeggeresq.com; or James M. Bacon, Esq at james@landeggeresq.com.