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$48 M penalty for pay stub violations

Small bits of paper, big paper cut

Posted June 10, 2019

Many state laws mandate that employers provide employees with pay stubs when delivering paychecks, either in hard copy or electronically. Some states take these little bits of information seriously, and have detailed requirements regarding that information. One employer found out how seriously when it was hit with a penalty for pay stub violations of $48,046,000, in addition to compensation violations of $53,901,700, totaling $101,947,700.

Case in point

A non-exempt employee had been working for the company for about eight years. During those years, overtime and bonuses appeared on wage statements (pay stubs). Employees who received a bonus and worked overtime also received an incremental overtime payment adjustment, which was identified on pay stubs as “OVERTIME/INCT” as a lump sum without hours worked or hourly rate broken out. The formula for calculating the OVERTIME/INCT payment could not, therefore, be determined from the pay stub alone.

The employee was terminated, and he sued for a few wage payment issues – in a class action. He claimed that the company failed to provide accurate itemized wage statements in two respects. First, he claimed that the company failed to provide the rates and hours worked for the OVERTIME/INCT line item. Second, he claimed that the company failed to provide the pay period start and end dates for the final wages paid in the statement of final pay.

While pay stubs for regular pay periods included a start and end date, pay stubs for final pay (when employment ended), which were provided the day of termination, did not include pay period start or end dates until the end of the normal biweekly pay period. Terminated employees are instructed how to access this information in an exit interview.

The court sided with the employee, indicated that wage statements are fine if an employee can ascertain the required information by performing simple math, using figures on the face of the wage statement. The company’s wage statements, however, did not include the required overtime rate, so employees could not calculate the required information.

The company was also on the hook for not paying adequate compensation for missed or truncated meal periods. Such “meal premiums” were paid at the employee’s base rate of pay, not adjusted upward based on, for instance, bonus payments.

The penalty could likely be appealed, but this case illustrates the importance of the accuracy of those little bits of information employers are to have in pay stubs. This case came out of California, but many states have pay stub rules.

Magadia v. Wal-Mart Associates, Inc., N.D. California, No. 17-cv-00062, May 31, 2019.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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