If you are an employer in California, you are likely well aware of Labor Code § 226 and the many items that our state requires to be on employee paystubs: gross wages, legal name of employer, inclusion dates for the pay period, etc. (Labor Code § 226) Failure to adhere to all of Labor Code § 226’s paystub requirements can result in penalties owed to the employee, and worse still, the possibility of a dreaded PAGA action. It is no surprise then that vigilant employers have kept a close eye on their paystubs to ensure inclusion of all the necessary information.

Businessman handing over paycheck at desk in officeBut what about the paychecks themselves? Often forgotten is Labor Code § 212 which imposes certain requirements on employers who pay employees with traditional paychecks (as opposed to direct deposit). A traditional paycheck must be “payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument…” Labor Code § 212(a). The point being that employees must have the opportunity to know where they can cash their paycheck and receive their wages immediately, without paying a fee.

Does this mean an employer must pick out one specific location where an employee can cash their paycheck and then list the location and its address on the check? Lucky for employers and employees, the answer is no. As long as the drawee of the check is a bank, the bank’s address need not appear on the paycheck itself. In other words, if the employer uses a bank with branches in California for its payroll checks, the employer need only list the name of the bank, so long as the check can be cashed immediately without a fee to the employee at any of the bank’s branches.

Failure to comply with Labor Code § 212 can result in minor penalties to an individual if they can establish that they were denied the opportunity to immediately obtain their wages. However, a purely facial violation on the check, and nothing more, could potentially result in a much larger PAGA lawsuit.

Although many workplaces find that the vast majority of employees receive their pay through direct deposit, there are still many employees who receive their wages in the form of a traditional paycheck. Accordingly employers should examine their paychecks and ensure the following:

  1. Paychecks should list the name of a national or state bank that has conveniently located branches where employees can cash their paychecks; and
  2. Employers should confirm with the bank used for its paychecks that all employees can cash their paychecks immediately at any of the bank’s locations without a fee (even if the employee does not otherwise bank there).

Earlier this week, I was advising a client on the termination of one of their spa employees. During the course of the conversation about his poor performance, the issue of his compensation came up. Turns out, while the termination was completely legitimate and non-discriminatory, we discovered liability for the client based on the employee’s commission-only salary structure and failure to provide meal and paid rest breaks. The next evening, while having my haircut, I raised this compensation structure with my stylist, also a massage therapist at a Southern California spa. Lo and behold, same arrangement.

Yesterday, a judge approved a nearly one million dollar settlement for the Sonoma Mission Inn’s posh Willow Stream Spa to settle a wage and hour, 103-member, class action lawsuit. That doesn’t sound relaxing at all.

Woman with face mask in a spa
Copyright: bds / 123RF Stock Photo

Here are some issues I have seen the past few months that can get spas and salons in trouble:

1) Paying by piecework (e.g. per treatment or service): this implicates AB 1513, which became effective January 2016, and requires compensation for all hours worked during a pay period, including breaks and other “non-productive” time. Many workers on a piece work plan are still not being paid for breaks as required by law. AB 1513 also requires a host of record-keeping obligations.

2) Paying by commission: legally speaking, commission payments are a percentage of sales and should not be paid for services performed. With spa or salon employees, it is arguable whether they really “sell” anything, in which case, a commission structure doesn’t work. Payment by commission requires the terms to be in writing and paid in the pay period they are earned. Employers frequently confuse the piece-rate and commission concepts and wind up in non-compliance.

3) Failing to pay minimum wage or overtime: because of the issues above, some spa workers are not receiving proper minimum wage or overtime payments. At spas where the compensation is a hybrid of compensation schemes, employers must be careful to calculate the regular rate properly.

4) Misclassification: some employers are still classifying therapists and aestheticians as independent contractors in likely violation of CA law. Because these workers are working in the spas at the direction of management, it’s a tough argument to make that such workers are independent contractors and exempt from the issues above.

If you are thinking you need a massage (or stiff drink) after reading this, I’m sure you’re not alone.