Due to an error with our payroll system, one of our employees was accidentally underpaid on the last payday. How can we correct this? Is it acceptable to wait to pay her the amount she is owed on the next paycheck in two weeks?
California Labor Code Section 204 requires all earned wages to be paid to an employee no later than the employer’s designated payday.
When an employer makes a payroll error that results in underpayment of wages, even without intent to wrongfully withhold wages that are due to the employee, a violation of the law has occurred and the employer could be subject to penalties for late payment of wages.
Note: One exception to this law is that pay for unscheduled overtime hours may be delayed to the next payday.
Pay as Soon as Possible
While there is no way to “undo” the legal violation for the underpayment, the best practice is to immediately pay all wages due to the employee as soon as the error is discovered. This shows a good faith effort to comply with the law, rather than a willful failure to pay wages.
Requiring the employee to wait until the next payday two weeks away is more likely to cause the employee to file a claim with the California Labor Commissioner.
Should a claim be filed, the Labor Commissioner’s Enforcement Manual states that “(i)f the evidence establishes that a good faith dispute existed or that the violation was not intentional, penalties may not be assessed against the employer.”
Paying the full amount of the wages as soon as possible after an error is discovered may help to show the error was unintentional and that the employer did its best to correct the mistake immediately.
It is important to note that if the underpayment occurs on a final paycheck, it is critical to correct the error immediately. With final wages, for every day the employee has to wait for the proper payment, the employer may end up owing waiting time penalties, which are one full day’s wages up to a maximum of 30 days.
The Labor Law Helpline is a service to California Chamber of Commerce preferred and executive members. For expert explanations of labor laws and Cal/OSHA regulations, not legal counsel for specific situations, call (800) 348-2262 or submit your question at www.hrcalifornia.com.