Generally referred to as “Payday Rules,” California law imposes strict requirements on employers with respect to when employees must be paid for work performed. These rules address current employees, as well as when employers are required to tender final wages to employees who leave employment, whether due to termination, voluntary resignation or otherwise.
Wages earned by employees must be paid in strict accordance with the California Labor Code. Generally, wages are payable twice each calendar month, on regular paydays designated by the employer. Specifically, wages compensating work performed on or between the first and 15th days of the month must be paid between the 16th and the 26th days of the same month.
Work performed on or between the 16th and the last day of the month must be paid between the first and 10th day of the following month.
Employees paid pursuant to a weekly, biweekly or semimonthly payroll can be paid within seven calendar days after the close of the payroll period.
There are several exceptions to these general rules which are applicable to overtime compensation, white-collar employees, union employees, commissioned employees, employees furnished board and lodging, farm labor contractors and agricultural employees, among others.
Employers are allowed to pay wages more frequently than provided by the rules set forth above. However, the Labor Code prohibits any private agreement, whether oral or written, that violates these deadlines.
Commissions are not earned or owed until agreed-upon conditions have been satisfied. For example, an employment agreement may specify that a commission is not earned until a client’s payment is received by the employer. As a result, there is no obligation to pay unearned commission wages in any particular pay period. Commissions are owed only when they have been earned, even if this occurs monthly, quarterly or on an even less-frequent basis.
In the event that a regular payday falls on a holiday, wages may be paid on the next business day.
Gratuities, or “tips,” are addressed in Labor Code section 351. This section imposes various requirements on employers concerning the payment of tips left for employees by patrons or customers. When tips are paid by credit card, the employer must pay the full amount of the gratuity that the customer indicated on the credit card slip. It may not deduct from this amount for processing fees or costs charged by the credit card company. Tips must be paid by the next regular payday following the date the customer authorized the credit card payment.
The above rules concerning regular paydays have no application to final wages due at the time of separation. When the employment relationship is terminated, specific rules take effect concerning the payment of final wages, and these are reinforced by substantial penalties for noncompliance.
Discharge: Generally speaking, when an employer discharges an employee, the employee must be paid immediately all wages earned to that point. The term “wages,” in this context, includes earned but unused vacation benefits, which must be paid on a prorated basis at the time of discharge.
Resignation: By contrast, employees who voluntarily resign their employment must be paid all wages due within 72 hours of the time of resignation. However, if the employee provides 72 hours advance notice of resignation, wages must be paid at the time the resignation takes effect.
Labor Code 203 provides a potent sanction for the failure of employers to pay departing employees in a timely manner. An employer who willfully fails to pay any and all wages of a terminated or resigning employee within the time constraints described above is subject to a “waiting time penalty” in the amount of the employee’s average daily rate of pay for a maximum of 30 days.
Employers are cautioned against deducting from final wages amounts claimed for advances made to departing employees against future wages, or as reimbursement for damage caused to the employer’s tools, equipment or other property, in the absence of a careful legal review of the basis for such deductions.
Jay G. Putnam is a Petaluma labor lawyer who has specialized in representing California employers for over 37 years. His practice is devoted to preventing lawsuits against his clients, without sacrificing workplace authority or management prerogatives. He has a remarkable record of success: Not one employer-client acting on his advice has been sued in over 37 years.
For those clients who have arrived with pending lawsuits, Putnam has established an excellent track record of success as well.
You are invited to visit Mr. Putnam’s website, where you will find in-depth discussion of the most common mistakes made by California employers, and how to avoid them. http://www.jaygputnam.com/newsletter/
Heads Up! Is not intended as a substitute for legal advice and its content is provided for discussion purposes only. Any suggestions or recommendations must be assessed by competent legal counsel to be sure the unique requirements of each workplace are properly considered.