When you dismiss an employee for poor performance, or when he beats you to the punch by quitting on you, you rarely feel the urge to rush that slacker his final check. But you should. Under the California Labor Code, you must pay all wages due at the time of an involuntary termination. And you must pay resigning employees within 72 hours if they suddenly quit on you. Further, if they are kind enough to toss at least 72 hours’ notice of resignation your way, then you must pay final wages to the resigning employee on the last day of employment.
Because these rules sometimes get lost in the heat of a termination moment, now seems the time to provide some reminders:
If an employee is terminated mid-pay period, can’t I just treat the former employee like everyone else and pay him in the regular payroll cycle?
No. Welcome to another California peculiarity; employers must pay wages to terminated employees on their last day of employment, even if that’s smack dab in the middle of the payroll cycle, or even the very next day after the last paycheck.
This may seem like an unnecessary trouble, but recall that Labor Code Section 203 imposes daily penalties for any willful failure to pay according to the schedule we described above. The penalty is measured in terms of the amount of daily wages, from the date the final wages were due until the date they are paid, up to a total of 30 days.
What kind of money are we talking about?
Suppose an employee who made $20 per hour is fired after working only two hours into the new payroll period. And suppose the employer then observes the normal payroll cycle and waits 13 days to pay the $40 in earned wages. The penalties for this seeming trivial infraction could be a startling $2,080 ($20 per hour x 8 hours per day x 13 days). In other words, waiting less than two weeks in this situation to pay the final wages could ultimately cost more than 50 times what the employee was actually owed. And yes, all days of delay are counted, including weekend days. The penalties just keep on rolling.
I fired an employee and now she claims she is due additional wages for dates that she did not actually work. I don’t want to face these pesky waiting time penalties, but do I have to pay?
Not necessarily. You need only pay the wages you concededly owe. If you have a good faith dispute as to whether you actually owe wages, then you have a defense to a claim for waiting time penalties. This is because assessment of the penalty is not automatic, and a “good faith dispute” that any wages are due is a defense to a penalty claim.
An employee on his way out the door just handed me 27 pages of business expense reimbursements. There’s no way I can verify and process these in 72 hours! Will I owe waiting time penalties?
No. The penalty is for failing to pay “wages.” A wage is money owed for labor performed. Expense reimbursements are not wages. Obviously, you don’t want to drag your heels on paying any expenses you owe. But no waiting time penalties should accrue while you work that number out.
An employee who just quit says, “Oh, by the way, I was denied meal breaks.” Will waiting time penalties accrue if I do not pay premium wages for missed meal breaks?
Some might argue Yes, but the best answer is No. While some argue that waiting time penalties can accrue solely for a failure to make premium payments for missed meal or rest breaks, the California Supreme Court, in Kirby v. Imoos Fire Protection, Inc., 53 Cal. 4th 1244, 1255 (2012), undermined that argument. The Kirby court said that meal and rest payments are not “wages” for the purpose of Labor Code section 218.5, which permits recovery of attorney’s fees in an action brought for nonpayment of wages. Rather, Kirby said, those payments are a form of a penalty, for purposes of that statute. Kirby’s language supports an argument that premium payments, if not “wages” for purposes of Section 218.5, are also not “wages” for purposes of Section 203. At least some courts have recognized the common sense of applying Kirby’s language in this context. Accordingly, employers have at least a good-faith argument that non-payment of meal and rest premiums would not be non-payment of “wages,” and a good-faith argument is all you need to avoid penalties under Section 203.
Workplace solutions: If it’s been a while since you’ve checked in on those who process your California terminations, it’s a good idea to remind them of the rules and the consequences for ignoring them. Also, ensure you have a practice in place whereby you can process a payroll the same day, just in case an immediate termination occurs. And, of course, if you have any questions about any final pay issues, reach out to your favorite member of the California Workplace Solutions team.
Regarding the Title: In apologizing for this obscure temporal allusion, we invite the culturally challenged to consult http://en.wikipedia.org/wiki/Time_Is_on_My_Side.