Wage & Hour Workshop Avoiding Payroll Miscalculations and Paystub Violations Michael W. Kelly Nisha S. Patel
Paystub Basics (Labor Code 226) • Timing and Form � Itemized Statement issued at time of payment of wages � Detachable part of the check OR � Separately when wages paid by personal check or cash 2
Paystub Basics (Labor Code 226) • Itemized Statement Contents � Gross Wages Earned � Total Hours Worked (except exempt salaried) � Piece-rate units earned and any applicable piece rate � ALL deductions – Deductions made at EMPLOYEE’s orders may be aggregated � Net Wages earned � Inclusive dates of the period for which paid � Employee name and last four digits of SSN � Name and address of the employer
Paystub Basics (Labor Code 226) • Itemized Statement Contents � All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate. – For temp agencies, this must be broken down by assignment. � Records must be maintained at worksite or central location in California for 3 years. � Current and former employees have right to inspect or copy records upon reasonable request. � You may charge employees the actual cost of reproduction. � Comply within 21 days of request.
Paystub Basics (Labor Code 226) • Damages � Employees suffering injury from a “knowing and intentional failure to comply” are entitled to the greater of – All actual damages OR – $50 for the first infraction and $100 for each subsequent pay period � Damages capped at $4,000 PLUS costs and reasonable attorneys’ fees.
Paystub Basics (Labor Code 226) • Employees Deemed Injured � No paystub supplied � Cannot promptly and easily determine from wage statement alone information regarding pay including gross, net or applicable hourly rates
Wage Basics • Regular Rate of Pay � Normally – Regular Rate = Total Pay/Total Hours Worked – Often, Regular Rate = Hourly Rate � Special Cases – Standby Pay – Bonuses and other NON-DISCRETIONARY incentives – Non-exempt commissioned employees – Payments other than cash
Bonuses • Bonuses paid as gifts for past service and not dependent on hours worked, production or efficiency are not included. • Bonuses that are announced to induce greater performance or to remain with company which are not discretionary are included.
Bonus Example • Basic Calculation � Hourly rate -- $10.00 � Hours Worked – 45 hours per week for 4 weeks � Regular Pay = $10.00 x 40 hours x 4 weeks = $1,600 � Overtime Pay = $15.00 x 5 hours x 4 weeks = $300 � Total Pay = $1,900 • Add a $75 bonus announced if employees complete project on time: � Regular Rate = ($1,800 + $75)/ 180 hours = $10.42 � Overtime Pay = $15.62 x 20 hrs = $312.40 � The $75 bonus actually yields an extra $87.40 in compensation
Special Regular Rate Rules • Gifts if not dependent on hours worked, efficiency, etc. • Payments not for hours worked – vacation, holidays, illness. (Note, as the $ come out of numerator, hours must come out of denominator.) • Uncontrolled Standby Pay IS included despite being pay for not working. • Show-Up or Reporting Pay and Call-Back Lump Sum pay require special consideration
Call Back Pay • Assume 40 regular hours and 3 days with call backs where employee worked 1 hour but was guaranteed 2 hours of call back pay at $15 rate. • Regular Rate � 40 hrs x $10/hr = $400 [Regular Hours Worked] � 3 hrs x $10/hr = $30 [OT Call Back Hours Worked] � 3 hrs x $15/hr = $45 [Call Back for Unworked] NOT INCLUDED � Regular Rate = $430/43 Hours = $10 hr.
Call Back Pay • Overtime Premium = ½ Regular Rate x OT Hours � 3 hrs x $5.00 = $15 OT premium • Total Pay for Week � Regular Pay = $400 � OT Pay = $45 � Call-Back Pay = $45 � Total is $490
What Makes This Hard? • Once the bonus is paid for an incentive earned based on past performance, the regular rate for the past period needs to be recalculated. � Using our Bonus example, if the employer did not know the $75 bonus was earned until after the close of the pay periods, it would have to go back and recalculate the regular rate to add in the additional $12.40. � This additional time in past pay periods needs to be clearly recorded on the pay stub. � Where the regular rate varies by week, this may require many new lines or an entirely separate check
What Makes This Hard? • Allocating bonuses across pay periods � If bonus is for completing project and is paid in first pay check AFTER the project is completed, the bonus is not being allocated to the actual hours during which it was earned. � Defining the bonus period is important. � Bonus periods often DO NOT align with pay periods – Contrast quarterly or monthly incentives with bi-weekly payrolls so the calendar periods DO NOT align with the bonus period. – This means that payroll has to recalculate the regular rate for some whole pay periods and also certain “rump” days at the beginning or end of contiguous pay periods.
Avoiding Recalculation Issues • If bonuses are paid as a percentage of Total Wages earned, there is no need to recalculate past OT payments. • If the Company announced the bonus for completing the project would equal 4.5% of Total Pay for the 4-week project in first example, the result would be an $85.50 bonus. � $1,900 x .045% = $85.50 • This works because you are increasing the regular pay ($1,600) and the OT pay ($300) by the same proportion.
Pitfalls of Percentage Method • You still need to apply it against Total Pay during a defined period of time • Run risk paying too much � Unexpected contingencies make the project take much longer so OT increases and Total Pay inflates � Scheming employees try to pad OT by working more slowly – Of course, that incentive always exists
Other Issues • Donning and Doffing • Meal and Rest Breaks � Payment for time worked and worked time is included in regular rate analysis � Premium or penalty is NOT included • Employee Expense Reimbursement
Contact Information Michael W. Kelly michael.kelly@squiresanders.com +1 415 954 0375 Nisha S. Patel nisha.patel@squiresanders.com +1 650 843 3342
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