Written by Ransom D. Boynton, Associate Koegle Law Group
If you are an employer in California, you have no doubt seen, heard, or read advertisements for one of the many human resources consulting and payroll processing companies. These advertisements promise that they can help your business manage its human resources and payroll needs for a fraction of the time, energy, and expense that it would cost you to administer these items yourself. That is, until you are served with your first wage and hour class action lawsuit, with a cause of action pursuant to the Private Attorneys General Act (“PAGA”) included for good measure.
Listen, I am not denigrating these companies, or their services. Many of them are quite reputable and do a great job for their clients. However, utilizing their services does not mean that you can “take a vacation” from auditing your wage and hour policies and procedures to ensure compliance with California law. This is especially true, considering that many of these human capital management (“HCM”) companies are not based in California. As such, they are not well-practiced in applying California’s extremely employee-friendly statutes, codes and regulations to ensure that your business is compliant with California law. As a result, while you are sipping Mai Tai’s on the beach, your HCM is inadvertently exposing your business to significant liability!
Most recently, we have seen several clients’ HCMs cause their business to fall out of compliance with Labor Code § 204—the statute that governs timely payment of wages. Many employers are unaware that even seemingly minor payroll delays or practices may expose them to significant liability, including penalties and potential PAGA claims. Brace yourselves. Reading the following paragraphs may cause drowsiness, or affect your ability to operate heavy machinery, but I promise that paying attention will save your business money.
What Does Labor Code § 204 Require?
Labor Code §204(a) requires that all wages earned by an employee be paid at least twice each calendar month. Specifically:
- Wages earned from the 1st to the 15th of the month must be paid between the 16th and the 26th of the same month.
- Wages earned from the 16th to the last day of the month must be paid between the 1st and 10th of the following month.
This “default rule” imposes 11-day fixed pay windows that effectively create a semi-monthly payroll structure that is “calendar based” (i.e. pay periods run from the 1st to the 15th, and the 16th to the end of the month). An employer using this model may comply with the Labor Code if they provide the employees’ paychecks anytime within the 11-day windows. (See Cal. Lab. Code §204(a).) This schedule results in 24 paychecks per calendar year, which is consistent with a true semi-monthly payroll schedule.
Labor Code Section 204(d): The Conditional Safe Harbor for Semi-Monthly Fixed Paydays
You may say, “that’s great, Ransom, but our company doesn’t use this payroll structure. We like to use weekly, bi-weekly, or another semi-monthly payroll schedule that isn’t ‘calendar-based’ because it works better for our business. Are we going to get in trouble?” Sit right down, dear reader, as I explain to you the wonders of Labor Code § 204(d).
A payroll schedule that does not align with the format required by §204(a) is not “calendar-based”. That is, it doesn’t align with fixed halves of the calendar month (1st-15th, and16th to the end of the month). For example, a weekly payroll schedule where the pay period runs from Sunday, January 1, to Saturday, January 7, with a pay date of Friday, January 13, is based on a 7-day cycle rather than the 1st-15th, or 16th to the end of the month. This is common in retail, hospitality, and hourly labor-heavy industries.
A Bi-Weekly payroll schedule is likewise not “calendar-based” because it utilizes 14-day cycle that is not dependent on specific calendar dates. That is, the beginning and end of the pay periods shift throughout the year, resulting in 26 pay periods per year, and different pay dates.
Lastly, “rolling” semi-monthly payroll schedules that do have pay periods which run from the 1st to the 15th, and the 16th to the end of the month are likewise not “calendar-based”. For example, an employer may elect to have pay periods that start and end on days other than the 1st-15th, or 16th to the end of the month. Several of our clients utilize this structure.
While not explicitly prohibited, weekly, bi-weekly, and semi-monthly payroll schedules that are not “calendar-based” are governed by Labor Code Section 204(d), which states that “[t]he requirements of this section shall be deemed satisfied by the payment of wages for weekly, biweekly, or semi-monthly payroll if the wages are paid not more than seven calendar days following the close of the payroll period.” (Cal. Lab. Code § 204(d). [emphasis added].) This means that employers who utilize weekly, biweekly, or “rolling” semi-monthly schedules that are not “calendar-based” must comply with the Labor Code by paying wages no later than seven days after the end of each period. (See id.)
Here is the problem: many employers and HCMs are not aware of this very nuanced application of Labor Code Section 204. Thus, they are utilizing a “non-calendar-based payroll structure,” which is governed by Labor Code Section 204(d), while still adhering to Labor Code Section 204(a)’s 11-day fixed pay day windows. This oversight can have a devastating effect on an employer’s business. The failure to meet Labor Code Section 204(d)’s 7-day rule constitutes a violation of Labor Code Section 204(a), even if the payroll structure itself is valid. This violation creates a “domino-effect” by causing violations of California Labor Code Section 226(a) (the failure to provide accurate itemized wage statements), and Labor Code Section 202-203, (Waiting Time Penalties), thereby creating wage and hour class action and PAGA liability exposure that could cost the company hundreds of thousands of dollars to remedy.
What Should Employers Do?
- Review your payroll calendar and ensure it aligns with § 204.
- Audit payroll systems for delays between work performed and wages paid.
- Ensure wage statements reflect correct pay periods and pay dates.
- Ensure that your HCM is aware of the provisions of Labor Code § 204, and that your business’s payroll schedule is fully compliant with its requirements.
- While you are at it, make sure that your HCM is paying meal period premiums to those employees that worked longer than five hours without receiving a 30-minute, uninterrupted meal period in accordance with Labor Code § 512. You would be surprised how many HCM’s do NOT do this without the employer affirmatively instructing them to do so.
Don’t Wait for a Lawsuit to Find Out You’re Out of Compliance
California wage and hour laws are complex, and even well-meaning employers can stumble into costly violations. If your payroll provider isn’t fully aligned with California’s unique requirements, your business could be at risk—often without you even knowing it.
Let’s fix that. Our employment law team is here to help you audit your payroll practices, identify potential compliance issues, and put proactive measures in place—before a demand letter or class action lands on your desk.
📞 Schedule a confidential consultation today and gain the peace of mind that comes from knowing your business is protected.
Contact us today at 661-362-0813 or schedule a confidential consultation at koeglelaw.com/contact.
