In California, for employees who are terminated, all earned and unpaid wages must be paid immediately and on the day of the termination. For employees who quit, all earned and unpaid wages must be paid within 72 hours of the employee’s notice to quit. For employees who are on a temporary or short-term assignment, the wages are due when the employment obligations are completed.
Generally, the employee must be paid at the place where the employee had provided the services to the employer. If the employee earns commissions, performance bonus, or other forms of deferred compensation, the employer must pay those wages as soon as they are calculated.
Consequences for Late Payment of Final Wages
Under California Labor Code § 203, an employer who fails to pay wages immediately upon termination or within 72 hours of a voluntary quit, is liable for one day’s wages up to 30 days. This is known as the “waiting time” penalty. Further, the waiting time penalty accrues at the employee’s average daily wage for each calendar day regardless of the number of days the employee normally worked.
The statute states that the failure to pay wages must be “willful.” However, the term willful simply means that the employer intentionally failed to perform an act that he was legally required to be done. The employee must only show that the employer knew that wages were due and failed to pay them. Further, the employee can bring a claim to recover “waiting time” penalties even if the employer pays all other wages that were due.
Some employers attempt to assert various defenses to avoid waiting time penalties. Only a few narrow defenses have been recognized, including:
- A bona fide, good faith dispute between the employer and employee as to the amount of wages owed. However, any undisputed wages must be paid within the time frames as noted above.
- If the employer could not calculate the amount of wages owed at termination. For example, commission wages which have not been determined or calculated would not be subject to waiting time penalties.
Any payments that the employee receives as waiting time penalties are not considered earned wages and the employer cannot withhold normal income taxes. Of course, the employer can report the payments as another form of income (such as miscellaneous income on a 1099 form) and the employee would be responsible for the tax consequences of that income.