Failing to comply with California’s final pay laws can result in significant employer penalties – many of them quite severe. Understanding California’s final pay laws and the various ways to ensure compliance with these rigid statutes is key to avoiding costly penalties and possible employee/employer litigation.
Imagine this: a company has made the tough decision to terminate an employee for poor job performance. They’ve seemingly followed all the rules and regulations governing the termination of the employee, and all seems to be going as smoothly as possible. A few days later, they get a call from the fired employee asking where their quarterly bonus check ended up. The company doesn’t feel like the bonus is owed to the fired individual, but the employee insists on getting paid per the business-line incentive plan they’ve been operating under.
If the money is truly owed to the previous employee, the company might be on the hook for it – and any penalties resulting from being late on the final payment. This situation and countless others like it play out thousands of times each year across the State of California, costing millions of dollars in penalties and serious reputational damage to even the most compliant of employers. Let’s look at some of the most prevalent final pay violations and how to avoid them.
PROMPT FINAL PAYMENT
If an employee is fired in the State of California, they need to receive their final paycheck right away. The problem is, some terminated employees are discharged hastily – often as a result of a policy violation, ethics issue, or even workplace violence. Regardless of the reason for the termination, employers must provide an accurate final paycheck right away and issuing a check the same day as the termination is ideal. Also, employers should never pay using cash or a non-traceable form of payment, as you can always prove that a check was issued or direct deposit was attempted if called to question. Having the terminated employee sign a form confirming they’ve received final pay is a smart move, too.
If an employee quits and provides at least 72 hours' notice, employers must provide a final paycheck on their actual separation date. Employees who quit without providing at least 72 hours notice are entitled to receive their final paycheck within 72 hours of their last day at work. Even if the employee does not provide appropriate notice, there is nothing to be gained by waiting the full 72 hours to make the final payment. Employers should simply do the payroll calculations and cut a check or initiate an ACH/direct deposit, always erring on the side of paying too quickly.
- Other Unpaid Wages: In addition to promptly paying terminated California employees their final paychecks, employers must also ensure that other categories of unpaid wages are included on the individual’s final check. There are several types of wages that fall under the umbrella of “other” wages, including:
- Unpaid overtime: Any previously earned overtime pay that has not yet been received by the affected employee must be included in the final paycheck. Failure to do so can trigger penalties through the Department of Labor Standards Enforcement.
- Missed rest or lunch breaks: Under CA Labor Code section 226.7, an employer must pay CA-based employees an hour of pay for each missed meal or rest period during a normal shift. This is treated as normal wages and must also be included in the final paycheck.
- Unused vacation time: Any accrued but unused vacation time must also be paid out to the terminated employee on their final check. It is illegal in the State of California to enact “use it or lose it” rules around vacation, which means any unused vacation time must be paid and cannot be forfeited.
- Commissions, bonuses and other incentives: This one is a little less concrete, as the right to receive compensation for bonuses, commissions, and other job performance-related incentives is generally governed by an existing employment agreement, as well as California law. For instance, a company may stipulate that to receive a bonus, the individual must be an “active employee” during the payment timeframe.
WHAT HAPPENS IF AN EMPLOYER DOES NOT ABIDE BY THESE LAWS?
If an employer doesn’t abide by these laws, the penalties can be quite severe and the reputational risks are real. California’s Department of Labor Standards Enforcement imposes a “waiting time” penalty on employers who do not follow California final pay laws, equating to one day of normal wages for each day the employer is late making the final payment. For example, a 40-hour-per-week employee who earns $18/hour would earn $144 in penalties per day, with a maximum of 30 days. An employer who fails to make timely final pay on this wage earner could be on the hook for up to $4,320 in penalties if the issue is left unresolved for a full 30 days.
The bottom line? Businesses must pay terminated employees what they are owed and do so immediately. Even if an employer wants to take a stand and allow their principles to be their guide when faced with paying a terminated employee a bonus, overtime or other amounts owed, the costs of non-compliance can be staggering. California has some of the strictest laws in the nation concerning employee rights, and employers must fully understand all facets of final pay laws to ensure total compliance at all times.
Have you ever left a job, without receiving your final pay in a timely manner? The Feldman Browne Olivares Law firm can assist you. Contact us and we can set up a free labor and employment review for you.