Keeping and Maintaining Payroll Records

In this post, I will discuss the all-too-important but too-often-ignored obligations of California employers to generate accurate payroll records and pay stubs and to keep these records in California. Employee payroll records and pay stubs are critical not just for the business’s operation but also for the employees of the business. Therefore, it’s no surprise that payroll records are usually the focal point of most, if not all, employment law and, in particular, wage and hour lawsuits in California. Recording payroll information and retaining those records for at least two to three years are indispensable parts of efficiently running a business, and running it in accordance with the law.

Employees are Entitled to Accurate, Itemized pay Stubs at Least Twice a Month

California Labor Code section 226 sets forth the precise information that must appear on employees’ pay stubs. Along with their paychecks, employees must receive pay stubs containing the following information: “(1) gross wages earned, (2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime… (3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, (4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item, (5) net wages earned, (6) the inclusive dates of the period for which the employee is paid, (7) the name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number, (8) the name and address of the legal entity that is the employer… and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.” (Lab. Code § 226(a) (emphasis added)).

If you are an employer and your payroll records are generated by someone other than you (for example, a payroll processing service like ADP), make sure all this information is on every single pay stub for every single employee. Accurate pay stubs must be kept in California for three years, even if they are generated and kept out-of-state.

All Employee Payroll Records Must be Kept in California for Three Years

California Labor Code section 1174 requires that all payroll records showing employees’ daily hours worked and the wages paid to them be kept in the State of California. And these records must be kept for three years. Employers should not make the mistake of expecting the company generating the payroll records in another state to maintain the necessary records in California or to retain them for them three years. I always suggest to California franchisees, in particular, that they keep their own, independent records, apart from the franchisor, that show the necessary information.

Employers nowadays are inundated with employment documents, whether its employment application, new hire forms, or meal break waivers. But among the most critical for employers and employees alike are employee payroll records and pay stubs. In fact, in just about every wage and hour lawsuit brought in California over the last 10 or so years, employees have cited to their employer’s failure to abide by the two sections mentioned in this post – Labor Code sections 226 and 1174 – as part of their basis for damages. So, whether you are a California employer or worker, it is important to regularly review employee records, especially pay stubs, for any discrepancies or inaccuracies.