California law is very precise when it comes to the payment of wages, when final wages are to be paid, what is to be recorded on an employee’s wage statement (or pay-stub), along with a multitude of other laws and regulations – the non-compliance of which can result in substantial liability and penalties.
Below is a summary of the rules pertaining to the payment of final wages.
TIMING & METHOD OF PAYMENT OF FINAL WAGES
Termination
Subject to a few exceptions for employees in certain industries, California Labor Code Section 201 requires that a terminated employee must be paid their final wages immediately; meaning at the time of termination. This includes not only terminations, but furloughs, layoffs, and any other separation of employment (except voluntary resignation).
Resignations
For employees who voluntarily resign their employment, their final wages are due within 72 consecutive hours of the time of the notice of resignation, or on the employee’s final day of employment if the employee has provided the employer with more than 72 hours notice.
Employees who quit without providing at least 72 hours’ notice may be provided their final wages by mail at the address provided by the employee. For the purposes of this requirement, the date of mailing constitutes the date of payment.
For Any Separation
Do not wait to process the final wage payment until the next payday, even if the departing employee consents to wait. This is not acceptable and can result in a claim for waiting time penalties (see below).
Method and Place of Payment
California Labor Code Section 208 mandates that a terminated employee must be paid “at the place of discharge.”
It also mandates that a resigning employee must be paid “at the office or agency of the employer in the county where the employee has been performing labor.”
What does this mean? You provide the terminated employee their final paycheck as they are leaving, and for employees who resign with 72 hours notice, they too are to be handed their check. If 72 hours notice is not provided, the check can be mailed.
Final paychecks should not be sent certified mail or registered mail or any other type of mailing that requires a signature; if no one signs for the delivery of the check, it will be deemed not to be timely delivered. Instead, use an overnight delivery service that provides tracking and proof of delivery.
As to the method of payment, if an employee has authorized the employer to use direct deposit, the final payment may be paid by direct deposit. However, there are some delays with direct deposit by the financial institutions so an employer should confirm with the employee if direct deposit is acceptable. Otherwise, the payment must be delivered to the departing employee in the time specified.
WHAT MUST BE INCLUDED WITH THE FINAL WAGES
In addition to the compensation earned, any accrued vacation (or PTO) must also be paid to the employee within the time specified above. Paid Sick Leave is not paid out at time of separation so does not need to be included in an employee’s “final” wage payment.
PENALTIES FOR NON-COMPLIANCE
Waiting Time Penalties
If an employee is not timely provided their final wages, the employee may seek to recover “waiting time” penalties (Labor Code Section 203). The employee may file an administrative claim with the Labor Commissioner’s officer or can include this claim in a lawsuit. The waiting time penalties are calculated at the employee’s daily wage rate for each day that their final wages were not provided up to 30 calendar days.
For example, an employee who was regularly scheduled for 8 hours per day, earning $20.00 per hour, who was not provided their final wages for 30 days after the time required by law, could be entitled to waiting time penalties of $4,800.00 (e.g., 8 hours per day x $20 per hour x 30 days = $4,800.00).
Employees also may seek to recover “waiting time” penalties when they assert other labor code violations. These are called “derivative” claims – where an employee was not paid all wages due during employment (e.g., because the employee claims unpaid overtime, or a missed meal or rest break and was not paid the penalty payment). In these situations, the employer may pay the final wages believed to be due and owing, but based on the employee’s claims, the payment of final wages at the end of employment was not compliant.
Because “waiting time” penalties can be significant, it is important to ensure that employees are timely paid their final wages. Employers should put proper policies and procedures in place, including ensuring that paychecks are prepared and ready to be provided to employees on their last day of employment if they are being terminated.
This Newsletter is intended as a brief summary of employment law. While every effort has been made to ensure the accuracy of the information contained herein, it is not intended to serve as “legal advice,” or to establish an attorney-client relationship. If additional information is needed on any of the topics contained herein, please contact our office. All rights reserved. ©2024.