The Top Four Reasons Why Employers Should Keep Employment Records
If I were to give a single legal advice to any employer who wants to comply with wage-and-hour laws, it would be: “Keep accurate employment records for all workers!” During the last few years, California employers have witnessed a drastic increase in wage-and-hour litigation. A typical wage-and-hour case usually includes claims for minimum wage and overtime compensation, missed meal and rest periods, reimbursements and few others. At the heart of any such dispute is the question: “How many hours Plaintiff worked?” I write this post to explain why it is crucial for employers to keep track of employees’ hours and what legal liabilities arise for a failure to do so.
REASON 1: Recording Keeping is Required by Federal and California Law.
Both federal and state laws establish specific recordkeeping requirements.
Every employer subject to the FLSA ‘shall make, keep, and preserve such records of the persons employed by him and of the wages, hours, and other conditions and practices of employment maintained by him, and shall preserve such records’ for specified periods of time. 29 USCA § 211(c). Specifically, the following payroll records must be maintained for at least three years:
- Payroll records, including each employee’s name, address, occupation, hours worked each day and week, wages paid and date of payment, amounts earned as straight-time pay and overtime, and deductions;
- Plans, trusts and collective bargaining agreements;
- Employee notices; and
- Sales and purchase records. 29 CFR § 516.5
The following additional records must be retained for a minimum of two years:
- Basic time and earnings cards;
- Wage rate tables;
- Work schedules;
- Order, shipping and billing records; and
- Records of additions to or deductions from wages.
In addition to many other record-keeping requirements, California employers must keep records of the names and addresses of all employees, the ages of any minors working, and daily hours worked and wages paid to all employees. Cal Lab. Code §§ 226, 1174, 1175. Such records must be maintained for a minimum of two years–three years for records showing wage deductions–and employers must allow inspection by the employee and the Division of Labor Standards Enforcement. Cal. Lab. Code §§ 226(a), 1174(d).
Requirement to Provide Paystubs
Employer’s duty to provide paystubs to each its worker for each pay period is one of the most crucial record-keeping requirements in wage-and-hour litigation. Section 226 of the Labor Code requires every employer to provide to each of its employees, semimonthly or at the time of each payment of wages, either as a detachable part of the check, draft, or voucher paying the employee’s wages, or separately when wages are paid by personal check or cash, an accurate itemized statement in writing showing the following nine things:
(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 under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission,
(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 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, if the employer is a farm labor contractor, as defined in subdivision (b) of Section 1682, the name and address of the legal entity that secured the services of 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.
Payments in Cash
California employers are allowed to pay wages in cash. However, Labor Code section 226 was enacted to ensure that employees receive all benefits to which they are legally entitled and that correct taxes are paid to state agencies. Therefore, when wages are paid in cash, employers must furnish employees an itemized written statement that meets the same conditions as are identified in section 226 of the Labor Code.
Duty to Provide Records Upon Employee’s Request
Current and former employees are entitled to copy or inspect their payroll records. Employers have 21 days to permit the employee to inspect or copy those records. Employer who fails to comply with this requirement is subject to a $750 fine, and the employee may sue to obtain the information and recover costs and fees, including attorney’s fees. Cal. Lab. Code § 226(c),(f) & (g)
California Wage Orders:
In addition to Labor Code, the Division of Labor Standards Enforcement established its own record keeping requirements which are listed in applicable wage orders. For example Wage Order 5-2001 reads “[e]very employer shall keep accurate information with respect to each employee including the following:
(1) Full name, home address, occupation and social security number.
(2) Birth date, if under 18 years, and designation as a minor.
(3) Time records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.
(4) Total wages paid each payroll period, including value of board, lodging, or other compensation actually furnished to the employee.
(5) Total hours worked in the payroll period and applicable rates of pay. This information shall be made readily available to the employee upon reasonable request.
(6) When a piece rate or incentive plan is in operation, piece rates or an explanation of the incentive plan formula shall be provided to employees. An accurate production record shall be maintained by the employer.
REASON 2: Failure to Maintain Employment Records May Subject Employer to a $4,000 Penalty.
California record-keeping laws are extremely strict. If any employer knowingly and intentionally fails to provide to its workers paystubs stating information listed in section 226 of the Labor Code, such employer may be subject to penalties. Specifically, an employee suffering injury as a result of employer’s failure to provide paystubs is entitled to recover the greater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not exceeding an aggregate penalty of four thousand dollars ($4,000), and is entitled to an award of costs and reasonable attorney’s fees.
REASON 3. Failure to Maintain Employment Records May Subject Employer to Civil Penalties.
In addition to the above-stated penalty, a non-complying employer may be liable for civil penalties to the Department or employee who brings a suit under the Private Attorney General Act of 2004. Labor Code section 223 states that a ny employer who violates subdivision (a) of Section 226 (i.e. paystubs requirement) shall be subject to a civil penalty in the amount of two hundred fifty dollars ($250) per employee per violation in an initial citation and one thousand dollars ($1,000) per employee for each violation in a subsequent citation. Given there are 52 weeks a year, employer can be exposed to as much as $23,500 for its failure to furnish workers paystubs.
However, the Labor Commissioner or the court has discretion not to penalize for the first violations a non-complying employer if it finds that the violation was inadvertent due to clerical error or mistake.
REASON 4. Failure to Maintain Employment Records May Result in Greater Damages Award to Aggrieved Employee Due to Exaggerated Work Hours.
One of the main factual disputes arising during wage-and-hour litigation is the number of hours worked by the plaintiff. Employers who diligently comply with California and Federal record-keeping requirements can easily prove the plaintiff’s hours by producing payroll records or paystubs. Non-complying employers face more difficult task. California and federal courts allow workers to meet their burden of proof in wage actions by their own testimony showing that they have in fact performed work for which they have not been properly compensated. Interesting is the fact that employees do not have to prove their precise hours of work. Inexact or approximate evidence will be sufficient to meet the burden as a matter of a just and reasonable inference. Beliz v. W.H. McLeod & Sons Packing Co., 765 F.2d 1317, 1330-1331, (5th Cir. 1985); see also Brown v. Family Dollar Stores of Indiana, LP, 534 F.3d 593, 597 (7th Cir. 2008) ; Allen v. Board of Pub. Ed. for Bibb County, 495 F.3d 1306, 1316. (11th Cir. 2007).
Therefore, for purposes of litigation maintaining adequate employment records prevents a possibility of employees exaggerating their damages by unreasonably inflating the alleged hours worked.