Legal Implications of Incorrect Pay Stubs and How To Avoid Them

Pay stubs may not seem to be very important documents at first glance. However, they're quite important in the relationship between an employer and an employee.

So, whenever there are mistakes in these papers, it's a major issue. The mistakes can happen because of carelessness or even faulty systems. Yet employers are liable to pay the price. Therefore, any business owner or HR personnel needs to know the legal implications of incorrect pay stubs.

In this article, we'll bring out the legal implications of incorrect pay stubs. You'll learn those common errors and how to prevent them.

What Are Pay Stub Requirements?

Anything that has to do with paying others usually has some sort of regulation around it. Pay stubs and wage statements are a part of this. They are subject to legal requirements at different levels. That includes the federal, state, and sometimes, even local levels. However, depending on the state, the rules employers have to follow vary.

Now, you need to know that this is not just mere bureaucracy. As an employer, you must follow such rules. For example, the California Labor Code has some important provisions in Section 226. It is a provision that clearly identifies nine items that must be included in the wage statement. The omission of any of these elements may also be deemed a violation.

Common Pay Stub Errors and Legal Implications of Incorrect Pay Stubs

Different pay stub errors have different repercussions under the law. By being aware of these mistakes, an employer can easily avoid them:

Employee Misclassification

One of the critical mistakes is the classification of employees. Here, some employers will put their workers in the wrong category. For example, they'll state that they're independent workers when they're not. Many also make mistakes when it comes to separating exempt or non-exempt workers. This has implications for the manner in which hours are recorded. So, it may attract serious legal consequences, such as back pay and penalties.

Inaccurate Hour or Wage Calculating

This causes a problem because it distorts the number of hours worked and leads to insufficient wages. So, it can attract those incorrect pay stub penalties. These include any errors that may occur with regard to overtime. It also happens a lot when workers work on shifts or get commissions.

Some employers tend to ignore these differences in payment structures. They'll just lump everything together. This can result in drastic discrepancies, leading to wage claims. It may also demoralize employees, meaning it's more than just the legal implications of incorrect pay stubs.

Incorrect Deductions and Contributions

Another commonly made mistake is incorrect deductions and contributions. Sometimes, the data on the pay stub ends up not correlating to the actual deductions. This also happens with insurance and voluntary contributions. Once these figures start having such issues, you're looking at compliance issues.

Omitting Mandatory Information

Depending on where you operate, you must put some information on pay stubs. So, you have to ensure you don't omit them or present them wrongly. When this happens, it usually doesn't matter whether it's negligence or deliberate. Usually, it'll expose the employer to those incorrect pay stub penalties. Pay attention to even those minor technicalities. The things you disregard may lead to legal actions you could have avoided.

Incorrect Pay Stub Penalties

Incorrect pay stub penalties usually depend on what was done and where it happened. These are common ones:

Financial

Most penalties come with great financial threats for employers who do not conform. Labor department fines are commonly administered for violations of pay stub rules. These penalties usually increase when there are repeat offenses. This means the employer needs to correct those issues immediately. If they don't, they will face higher penalties. 

Civil

These are normally expressed in terms of money that must be paid to affected employees. In California, an employee may get $50 for the first violation of the pay stub rules. After that, they start getting $100 for every employee. They can keep getting that money till it reaches the maximum of $4,000.

Think of that happening with several employees during several pay periods. When you put it together, the loss is quite huge. Also, the loss is not just in the direct costs. There are a lot of indirect costs in these situations. For example, attorneys’ fees and expenses associated with being taken to court. This can also increase the loss related to pay stub violations.

An employee can choose to sue their employer if the violation affects them. This can be for individual damages, so they can get money. It can even be injunctive relief to tell the court to compel the employer to do things the right way.

In some cases, a number of employees are affected by it. Then, they may decide to come with a class action suit. When that happens, it can greatly harm the employer, both their reputation and their finances.

Criminal

When the violation is severe, there's a possibility that it'll go as far as criminal actions. For instance, California law has provisions for those who knowingly violate the provisions. The employer may be found to have committed a misdemeanor. The penalties can be fines that go up to $1,000 or a jail term of up to one year. In fact, it can be both.

Many states take these seemingly small pay stub infractions seriously. This is especially for repeat or malicious offenders. So, the threat is real for employers who do not follow the law.

How To Prevent Any Legal Issues Payroll Errors

Employers can take some measures to reduce the chances of those mistakes:

1. Modern Payroll Solutions

Looking into proper payroll solutions should be at the top of the list. Most modern payroll solutions have great features that can help prevent such issues. The system itself can automatically calculate all the necessary parameters. Some also have built-in checks for compliance.

These systems can notify employers of possible problems. This way, they can catch them before they are reflected on the pay stubs. Many also offer secure ways of storing payroll information. 

2. Payroll Audit

A review of the company's process can be done from time to time. This will help in finding areas that are weak and susceptible to errors. These audits should cover the format of pay stubs and their content. Such audits, for instance, can be carried out annually or more often.

They are useful because changes may occur from time to time. It could be in personnel, business activities, or statutory changes. 

3. Staff Education

Payroll staff should also be educated on the necessary laws. This helps them ensure they operate in compliance with them. That includes the laws of their nation, country, or state. This education aids in making sure that the preparation of pay stubs is done accurately. Also, the person preparing the stubs can detect any errors early enough. So, they don't reach the employees in that state.

4. Regulatory Information

Payroll requirements change frequently. There may be new legislation and cases that change the compliance requirements. Employers must find a means to know when the status quo changes. So, they are in a position to change their payroll process when it's time. This means they stay ahead without waiting for violations to occur.

On a Final Note

The legal implications of incorrect pay stubs can be a lot for employers. 

It is beneficial to implement measures to prevent mistakes from happening in the first place. This helps businesses minimize the legal risks of pay stub errors. At the same time, it helps them build trust with their employees. Investing in proper pay stub practices will help achieve compliance and better employee relations.

Running a business is already taxing, and the last thing you want is costly mistakes. Let our pay stub creator help you stay out of legal trouble. Our platform makes generating accurate, compliant pay stubs effortless. Check it out today for your financial documentation needs.