Paying any wage with a check backed by insufficient funds is unlawful. The dishonored check constitutes evidence that you violated the law.2 Payment by means of an insufficient check can subject an employer to waiting time penalties.3 However, the Legislature did not intend absolute criminal liability for all cases of issuing paychecks with insufficient funds. In cases where insufficiency results from unforeseen or unpreventable circumstances, violation of the statute may become excusable.4 For more information on penalties for insufficient funds for payroll, see “Insufficient Paycheck Funds” in Wage Order Enforcement and Penalties.

The law doesn't prohibit you from using an electronic transfer system, such as direct deposit, to transfer wages to a bank, savings and loan or credit union pursuant to an employee's voluntary choice and authorization. However, you cannot force employees to use a direct deposit system; employees must voluntarily authorize the direct deposit system.5

Public employers, including California and all local governments, do not fall under provisions that establish time and form of payment.6

Payroll With Pay Cards or Debit Cards

Some employers use prepaid debit cards to issue payroll to employees.

Two DLSE opinion letters state that the use of payroll debit cards and money network checks doesn’t violate the Labor Code so long as all of the following conditions are met:

• The receipt of payment in this manner is voluntary;
• Employees have other payroll payment options;
• There is no fee to use this form of payment at least once per pay period at a banking institution in California;
• The employee has immediate access to the funds; and
• The employee has specifically authorized the form of payment.

Consult with legal counsel before implementing a payroll program using pay or debit cards.7

Itemized Wage Statement

California law contains very specific requirements for the information employers must put on employees’ wage statements, also known as a paystub, and imposes financial penalties on employers who don’t follow those requirements.

At the time wages are paid, you must provide each employee with an accurate, itemized written wage statement.

Labor Code section 226 describes a wage statement as an itemized written statement provided to employees either as a “detachable part of the check, draft or voucher paying the employee’s wages” or a separate writing if the wages are paid by personal check or cash.

Wage statements must contain all the required information on their face. A wage statement is not complete if an employee must refer to another document to get the required information.

• You are ultimately responsible for providing compliant wage statements to employees. If you use a payroll company to prepare wage statements, ensure you are providing your payroll company with all the information that must be contained in the wage statement. Review wage statements for completeness and accuracy; do not assume the wage statements are accurate.

Labor Code section 226 lists nine categories of information that must be reflected on wage statements, which includes specific requirements for piece-rate and temporary service employees. Additionally, there are paid sick leave requirements that apply to wage statements.

The following information must be included:8

• Gross wages earned in the pay period.
• Total hours worked in the pay period. (This requirement doesn’t apply to exempt employees.)
• All deductions, including taxes, disability insurance and health and welfare payments.
• Deductions made on the employee’s written orders can be aggregated and shown as one item.
• Net wages earned in the pay period.
• The pay period’s inclusive dates (meaning the start and end of the pay period).
• Name of the employee and last four digits of their social security number or an employee identification number other than a social security number;
• The full name and address of employer or legal entity that is the employer (if the employer is a farm labor contractor, the wage statement must include the name and address of the legal entity that secured the services of the employer).
• All applicable hourly rates in effect during the pay period and the corresponding number of hours the employee worked at each hourly rate.
• Temporary service employers must also include the rate of pay and the total hours worked for each temporary services assignment. (This requirement doesn't apply to a licensed security services company that solely provides security services).9
• The number of piece rate units earned and any applicable piece rate, if the employee is paid on a piece rate basis.
• For information on additional wage statement requirements for piece rate employees, see , see ”Requirements for Piece Rates Workers” on this page.

In one case, an employee argued that the employer's name and address must exactly match the information registered with the Secretary of State. The court disagreed, holding that the use of the employer's fictitious name on the wage statements was sufficient.10 The court noted that section 226 doesn't require the use of a "registered" name and that use of a fictitious business name doesn't create a separate legal entity.

The court noted that section 226 doesn’t require the use of a “registered” name and that use of a fictitious business name doesn’t create a separate legal entity. Since YRC Inc. and YRC Freight are the same legal business entity, there was no violation of section 226.

• Though fictitious business names have been proven legally acceptable, employers should ensure that the company’s full legal name appears on wage statements in order to minimize the risk of violating section 226.

Employees who are exempt from the payment of minimum wage and overtime under the Labor Code or the Wage Orders aren’t required to have their hours tracked and logged on an itemized wage statement.11

• For a visual sample of what to include in wage statements, visit our SmartStub tool.

Wage Statement Requirements for Paid Sick Leave

California’s mandatory paid sick leave law requires employers to provide employees with a written notice that sets forth the amount of paid sick leave available for use, or paid time off leave an employer provides in lieu of sick leave. Employers can provide the information on either:12

• The employee’s itemized wage statement;
• A separate writing provided on the designated pay date with the employee’s payment of wages.

Employers with unlimited paid sick leave or unlimited paid time off policies can meet the payday notice requirement by indicating “unlimited” on either the itemized wage statement or the separate notice.

For more information see Paid Sick Leave.

Wage Statement Requirements for Piece Rate Workers

In addition to including the number of piece rate units earned and any applicable piece rate,13 wage statements given to piece rate workers must include the following information for each payroll period:14

• The total hours of compensable rest and recovery periods, the rate of compensation for those periods and the gross wages paid for those periods; and
• The total hours of nonproductive time, the rate of compensation for nonproductive time and the gross wages paid for such time.
• If you pay employees for nonproductive time by paying a base hourly rate of at least the applicable minimum wage for all hours worked, in addition to the piece rate, you aren't required to include this information on the wage statement. For more information, see “Compensation for Nonproductive Time” on this page.

Wage Statements and Accrued Vacation or Paid Time Off

California law does not require that employers include the balance of accrued vacation on wage statements. The same is true for paid time off (PTO) balances, unless the employer is providing paid sick leave through the PTO policy, in which case it will need to include the balance as discussed above.

A California court of appeal confirmed that employers do not have to include the monetary value of accrued paid vacation time on wage statements unless and until the accrued vacation is paid out when the employment relationship ends. An employee sued their employer under the Private Attorneys General Act, arguing that wage statements should have included vacation because vacation/PTO is considered a "wage" under California law, and employers must itemize "wages earned" on the pay stub.15

The court dismissed the employee’s case and rejected the argument that vacation falls within the definition of “gross wages earned” and “net wages earned” which must be listed on the pay stub.

Under California law, vacation time is a form of “deferred wages” that is not payable until employment ends. Although an employee has vested rights to paid vacation during the time of their employment, the employee isn’t entitled to receive the monetary value of these wages until employment ends.16

In addition, the employer cannot ascertain the value of vacation time until separation. This is because “an employee is entitled to obtain the value of unused paid vacation at his or her ‘final rate.’”

Finally, the court noted that Labor Code section 226 is “highly detailed” and lists nine separate categories of information that must appear on the pay stub. Accrued paid vacation is not identified anywhere in this detailed list.

• If you provide mandatory paid sick leave through your PTO policy, you will need to provide the PTO balance on your pay stub. When an employee separates from employment, make sure that the final pay stub includes any vacation or PTO that is paid out to the employee.

Wage Statement Requirements for Meal and Rest Premiums

Employers also need to include payments for missed meal and rest break premiums on wage statements.

Although Labor Code section 226 does not contain a separate requirement that missed meal and rest break premium pay be reported, the California Supreme court held that premium pay for missed breaks constitutes "wages" and, pursuant to section 226.7, must be reported on the wage statement. It found that the intent behind section 226 was "to enable employees to verify they have been compensated properly, without shortchanging or improper deduction." Detailing such premium payments, according to the court, meets this goal.17

When California employers pay meal or rest break premium payments, the payments must be reflected on an employee's wage statement for the pay period that any such premium payment is made.

Wage Statement Requirements for Farm Labor Contractors

On the itemized payroll statement furnished to employees, employers that are farm labor contractors must disclose the name and address of all legal entities (for example, other growers or other farm labor contractors) that secured the employer’s services.18

For more information on special rules relating to farm labor contractors visit the Department of Industrial Relations dedicated web page.

Wage Statements for Interstate Employees

The California Supreme Court considered the circumstances in which certain provisions of the California Labor Code, including section 226 which governs wage statements, can apply to out-of-state employers with employees who only spend some of their time working in the state.19 This particular case involved an airline employer that employed flight crew employees residing in California but performing most of their work in airspace outside California’s jurisdiction. One issue in the case was whether the employer had to furnish itemized wage statements per section 226 to the employees.

The court held that to determine whether section 226 applies, courts should first consider whether the employee works the majority of time in California or in another state. For employees like the flight crew employees in the case, who don’t work principally in any one state, a court should secondarily consider whether the employee has a definite base of operations in California, in addition to performing at least some work in the state for the employer. As an example, the court stated that if a pilot or flight attendant has a designated home-base airport in California, then section 226 would apply; conversely, section 226 wouldn’t apply if that designated home-base airport was located elsewhere.

For pilots, flights attendants and other interstate transportation workers who don’t perform a majority of their work in any one state, the “principal place of work” test is satisfied when California serves as their “base of work operations,” regardless of their place of residence or whether a CBA governs their pay.

Bottom line, section 226 applies to employees whose “principal place of work” is in California.

Recordkeeping Requirements

A copy of the itemized wage statement and the record of deductions must be kept for at least three years at the place of employment or at a central location within the State of California. The copy an employer must maintain can be a duplicate of the itemized statement given to the employee or a computer generated record accurately showing all information required in the itemized statement.

You must allow the employee to inspect and/or receive a copy of them.20 For more information, see Access to Payroll File.

Penalty for Failure to Comply

A wage statement is more than a piece of paper. It can also be the source of enforcement citations or lawsuits. If employees believe their wage statements aren’t accurate, they can sue you — and the number of these lawsuits has increased dramatically in recent years. In particular, employees can file class-action and representative-action lawsuits under California’s Private Attorneys General Act (PAGA) for wage statement violations.

The potential liability in these types of lawsuits can be staggering. If a wage statement violation is common to all the members of a class or representative action, the total penalties can number in the hundreds of thousands — or even millions — of dollars.

The two types of penalties for wage statement violations are:

• Labor Code section 226.3, which imposes civil penalties on employers of $250 per employee per violation for the first violation and $1,000 per employee for each subsequent violation. If you make a clerical error or inadvertent mistake on the first violation, the Labor Commissioner has discretionary power not to penalize you.
• Labor Code section 226(e), which allows an employee who is injured by an employer’s knowing and intentional failure to provide an itemized wage statement to recover the greater of all of the employee’s actual damages, or $50 for the initial violation and $100 for each subsequent violation, not to exceed an aggregate penalty of $4,000.

Labor Code section 226(e) allows an employee “suffering injury” by an employer’s “knowing and intentional failure” to provide the itemized wage statement information to recover all actual damages or up to $50 for the initial pay period in which a violation occurs and $100 per employee for each violation in a subsequent pay period, up to a total of $4,000, plus costs and reasonable attorneys’ fees.

An employee “suffers an injury” with regard to employer-provided wage statements under the following two circumstances:21

• When the employer fails to provide a wage statement at all to the employee.
• When the employer (1) fails to provide accurate and complete information on the wage statement; and (2) the employee cannot “promptly and easily determine” the following information from the wage statement alone:
• The amount of the gross wages or net wages paid to the employee during the pay period or any of the other information required to be provided on the itemized wage statement.
• Which deductions the employer made from gross wages to determine the net wages paid to the employee during the pay period.
• The name and address of the employer and, if the employer is a farm labor contractor, the name and address of the legal entity that secured the services of the employer during the pay period.
• The name of the employee and only the last four digits of the employee’s Social Security number or an employee identification number.

“Promptly and easily determine” means a reasonable person would be able to readily ascertain the information without reference to other documents or information.

A “knowing and intentional failure” doesn’t include an isolated and unintentional payroll error due to a clerical or inadvertent mistake. In determining whether an employer complied, a factfinder may consider whether the employer, prior to an alleged violation, has adopted and is in compliance with a set of policies, procedures, and practices that fully comply with this section.

A Court of Appeal ruled that if the employer has a good faith belief that it is complying with wage and hour laws, it may preclude a finding of a “knowing and intentional” failure to comply with wage statement requirements. Notably, the court rejected the view taken by a minority of federal courts that “knowing and intentional” is a minimal standard satisfied by simply showing that an employer provided an inadequate wage statement not resulting from a clerical error or inadvertent mistake. Instead, consistent with California precedent linking the “willfulness” standard under Labor Code 203 (waiting time penalties for employers who willfully withhold employee’s final pay) to a “knowing and intentional” standard, the court held that a good faith dispute over whether an employer is in compliance with section 226 precludes a finding of a knowing and intentional violation.22

An employer can be liable under PAGA even if the employer did not knowingly or intentionally violate the wage statement statute, and the employee was not harmed in the violation.23 The employee can bring a PAGA claim under Labor Code 226.3, which allows for civil penalties that can be recovered by the Labor Commissioner. There is no knowing and intentional requirement to impose these civil penalties.

Wage and Employment Notice

Nonexempt employees must also receive specific wage and employment information at the time of hire. For specific information, see “Providing Wage Information Upon Hire” in New Employee Orientation.

• Wage and Employment Notice to Employees (Labor Code section 2810.5)
• Wage and Employment Notice to Employees (Labor Code section 2810.5) - Spanish

Execution of Release on Account of Wages Due

You cannot ask or require an employee to forego wages due or “execute a release” of wages due. The phrase “execute a release” includes requiring employees, as a condition of being paid, to sign a false statement of the hours they worked during a pay period. Employers who violate this law are guilty of a misdemeanor.24

1. Lab. Code sec. 212