When Thomas Jefferson commissioned an expedition to explore the western frontier in 1803, he called upon two men who, among other things, were valiant record-keepers. Meriwether Lewis, a secretary, and William Clark, a cartographer, spent three years exploring and documenting an unknown territory. Some of the most important things to come from the Lewis and Clark Expedition were their personal journals, which contained invaluable information used by those who followed their trail westward.
The value of record-keeping cannot be overstated. Advanced civilizations require written language, arts, sciences and government – which all begin with record-keeping. The same can be said about business. While all businesses keep records, there is a significant difference between a cave painting and the Great Library of Alexandria. Unfortunately, some business owners remain in the stone age of record-keeping, which can create significant liability.
Both Federal and State law require employers to create and maintain employment records. This includes payroll records, 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. These records must be maintained for three years. [Lab.C. §§ 226(a), 1174(d), 29 CFR § 516.5]. Other records, such as time and earning cards and work schedules must be kept for two years. [29 CFR § 516.6].
California law also requires employers to provide employees with wage statements (also known as pay stubs). The wage statements must include, the employer’s name and address; employee’s name and the last four digits of the employee’s Social Security number; inclusive dates for which the employee is being paid; gross wages earned; the applicable hourly rate and total hours worked for nonexempt employees (for employees paid on a piece rate basis, the applicable piece rate and units earned); all deductions; net wages earned; and if the employer is a temporary services employer, the rate of pay and total hours worked for each temporary services assignment. Lab.C. § 226(a).
The wage statement requirement provides employees with an opportunity to calculate the wages owed to them. To illustrate the need for accurate wage statements, imagine playing blackjack at a casino and having a hand totaling twenty. There would be outrage at the table if the the dealer claims to have cards totaling twenty-one without showing the full hand. Just as gaming rules require blackjack dealers to show all their cards, the law requires that employers provide a full accounting of employee wages.
An employer who violates the wage statement requirements is subject to civil penalties under Lab.C. § 226.3. This includes recovery of the greater of all actual damages or fifty dollars ($50) for the initial pay period in which violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of four thousand dollars ($4,000). The employee would also be entitled to an award of costs and reasonable attorney’s fees.
Current and former employees (or a representative) also have the right to inspect and receive a copy of the personnel files and records that relate to the employee’s performance or to any grievance concerning the employee. Labor Code § 1198.5. A violation of this provision is a penalty of $750 and attorneys’ fees should the employee be required to sue for the records. Under Labor Code § 1174.5, an employer who willfully fails to maintain records is subject to a civil penalty of $500.
If the civil penalties are not enough to discourage poor record-keeping, consider the ramifications it can have during litigation. If an employee alleges unpaid overtime, the employer will not be able to receive the benefit of poor record-keeping. If time sheets and payroll records are absent, a jury may consider the employee’s reasonable calculation of damages. In this situation, an employer can be found liable for an amount greater than the actual offense.
The best advice for an employer is to maintain accurate records and “show its hand” when required to do so. Being able to show favorable cards can prevent or win a lawsuit, so employers should strive to have records that can accurately show compliance with the law. If you intend to build a business, considering building it upon an foundation of accurate record-keeping.