Recent ruling clarifies two key wage statement questions

One of the most contentious areas of litigation between California employees and employers involves what's listed on the employee's pay stub or wage statement. Labor Code Section 226(a) specifies nine things that a wage statement must contain. Litigation on wage statement requirements is a fairly new phenomenon that took off only after the enactment of the Private Attorneys General Act (PAGA) in 2004. As a result, there have not been many appellate decisions on the subject and lawyers on both sides of the issue are eager for guidance.

Included in Labor Code Section 226(a)'s list is a requirement that the wage statement include the last four digits of an employee's Social Security number or some other identification number. Another requirement is that the wage statement list the hourly rates in effect for that pay period and the corresponding number of hours worked at each rate.

In Blair v. Dole Food Co., B263695 (Feb. 15, 2017) (unpublished), the Court of Appeal recently clarified these two key wage statement questions. Specifically, the court held that the requirement of an employee identification number allows for any unique identifier, and that the hourly rate of vacation pay for salaried, overtime-exempt employees need not be listed on a wage statement. In doing so, the court confirmed what most practitioners believed the statute required with regard to employee identification numbers and specifying hourly rates for salaried vacation pay.

In Blair, the company used an outside payroll provider to process payroll. The payroll provider generated a unique personal ID number that it listed on each wage statement in lieu of the last four digits of employees' Social Security numbers or the company's internal employee ID numbers. As a convenience for its employees, the company also listed a summary of accrued vacation time but did not include the hourly rate of vacation pay on the wage statements of salaried employees. The plaintiff, a salaried, overtime-exempt employee, filed a putative class action alleging that the company violated Section 226(a) by only using the identification number generated by its payroll provider. The plaintiff further alleged the company failed to identify accurate pay rates because it did not list the hourly rate of vacation pay on the wage statement of salaried employees.

Requirement to List Employee ID Number

The court found the unique employee identification numbers on the wage statements met the requirements of Section 226(a)(7), notwithstanding that it was a number generated and used primarily by the payroll provider. The court held Section 226(a)(7) does not require employers to use employer-generated internal identification numbers but that an "equally unique personal ID number simultaneously created for tax and payroll purposes" meets the requirements. The court explained that Section 226(a)(7) only requires employers to use a "unique" identification number that "consistently" appears on employees' wage statements. The court also noted that the legislative history of Section 226(a)(7) indicated that its purpose was to help prevent identity theft by not allowing full Social Security numbers to be listed.

Requirement to List all Hourly Rates, Including Vacation Pay

The court found that Section 226(a) does not require employers to identify an hourly rate of vacation and/or paid time off on wage statements for salaried employees who are overtime-exempt. First, the court noted that Section 226(a)(9) does not require an employer to list an hourly rate of vacation pay when those wages are paid; since vacation pay is not pay for time worked, employers are not required to list a corresponding hourly rate. Second, the court reasoned that since Section 226(a)(2) expressly relieves employers of the obligation to itemize hours worked for salaried, overtime-exempt employees, employers cannot be required to state the hourly rate of vacation pay on the wage statement of salaried employees. Notably, the court stated that if employers had to list an hourly pay rate for vacation pay, it would "nullify" Section 226(a)(2).

While this holding provides employers some clarity in two important issues related to the contents of wage statements, the case also illustrates the types of cases arising under PAGA.