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3 California Payroll Pitfalls—Including a New One for 2021

January 12, 2021 - minute read

California payroll laws are a tricky business for employers. It’s no secret that California wage and hour laws are uniquely complex and demanding and often impact employers’ payroll processing activities, too. As we enter the new year, now is the perfect time to ensure your business is in compliance, particularly given the latest California payroll twist.

In California, payroll law enforcement is aggressive. Unpaid wages penalties are stiff. Case in point: in 2018, its Bureau of Field Enforcement conducted 4,166 inspections, assessed $77,620,874 in penalties, and collected $11,658,099 in back wages.  

Clearly, if you operate in the Golden State, your payroll staff needs to be on their game. And your software as well. Your payroll software must be compliance-directed and easy-to-update. In addition to managing California payroll tax rates and deductions, it’s important to comply with these three uniquely Californian payroll regs, including one that’s new for 2021.

New Pay Data Report Due March 31, 2021

Last fall, California enacted Senate Bill 973, which requires employers to file employee wage and hour data. The report, due annually, is similar to the federal Employer Information Report (EEO-1) introduced by the Obama administration, rescinded by the Trump DOL, temporarily revived, and currently inactive.

Unfortunately, the first report—encompassing 2020 payroll data—must be submitted by March 31, 2021. Employers don’t have much time to collate their California payroll data, if they haven’t already.

This California payroll law applies to private employers with 100 or more employees, who must submit a separate pay date report for every worksite, along with one comprehensive report.

In a nutshell, employers are required to submit pay data by gender, race and ethnicity, sorted by job categories and pay bands, for one “Snapshot Period,”—any single pay period between October 1-December 31 2020, chosen by the employer.

The goal, according to SB 973, is to “identify wage patterns and allow for targeted enforcement of equal pay or discrimination laws.”

Now here’s another twist: as we write this, the state is still in the process of creating the actual pay data forms, as well an online filing portal. According to a state update released in November, these will be available before the March 31 deadline.

In the meantime, employers should be working with their payroll software providers to secure the needed data—and perhaps conduct an internal pay equity review to address any possible disparities now.

California’s Unique Paystub Requirements

The FLSA does not require employers to provide workers with paystubs, perhaps one reason so many employers run afoul of California payroll law paystub requirements. Under

California Labor Code Section 226(a), employers must not only provide workers with pay statements, but include this very specific information:

  • Gross and net wages earned
  • Total hours worked (except for salaried/exempt employees)
  • Number of piece-rate units earned, if applicable
  • All deductions
  • Pay period start and end dates
  • Employee’s name, address, and last four digits of his/her Social Security number (or other ID number)
  • Legal name and address of the employer
  • All applicable hourly rates and corresponding number of hours worked for each
  • Overtime compensation, commission, and bonuses
  • Available sick leave (under the state’s Healthy Workplace Healthy Family Act, eligible employees accrue one hour of paid sick leave for every 30 hours worked)

Under California payroll law, pay statements must be issued in writing on pay day—or, if paperless, be easy to access and print.

For employers, it’s a good idea to periodically audit those paystubs, ensuring your payroll software is set up to keep you compliant.

California’s Final Pay Rules

For employers in high-turnover industries, California’s demanding final pay rules can create payroll processing challenges. Exiting workers must receive their final paycheck swiftly, depending on the circumstances under which they’re leaving:

  • Workers who are fired must receive their final paychecks immediately.      
  • Workers who resign and provide at least 72 hours of notice must receive their final paychecks at the time of separation.
  • Workers who don’t give 72 hours of notice must receive their final paychecks within 72 hours of quitting.

California payroll law also requires all accrued, unused vacation and PTO is included in that final paycheck.

Clearly, it’s critical that employers’ payroll software can turn final paychecks around quickly and accurately. The “waiting time penalty” for failing to meet these timeframes equals the worker’s average daily wage for each day the employer is late, up to 30 days.

Does Your Software Meet the California Payroll Challenge?

If you operate in California, you need HR and payroll software that’s up to the challenge—like EPAY’s. Not only are we experts in payroll compliance, we have deep experience with California payroll law.

In fact, due to the accuracy of our payroll system and its superior recordkeeping capabilities, the vast majority of wage and hour lawsuits leveraged against our customers are abandoned before they even get to court. From complying with California payroll tax regs to administering popular on-demand pay, learn how we can simplify your greatest payroll challenges, in California and everywhere else.

Filed Under: Compliance Payroll & Tax California