The California Labor Code specifies that an employer who terminates an employee must immediately pay all of the employee’s unpaid, earned wages. If an employee quits giving 72 hours notice, the employee is entitled to receive a final paycheck on the last day of employment. On the other hand, if the employee fails to give 72 hours notice, the employer has 72 hours from the quitting date to remit final wages to the employee.

The Waiting Time Penalty Provision
To ensure that employers comply with the laws governing the payment of wages when an employment relationship ends, the legislature enacted Labor Code Section 203, which provides for a “Waiting Time Penalty.” Under this provision, a penalty is levied against the employer if it willfully fails to pay wages due to the employee at the conclusion of the employment relationship. For each day that overdue final wages remain unpaid, a waiting time penalty equal to the employee’s daily rate of pay may be assessed against the employer up to a maximum of 30 days.

Based upon the wording of the statute, you may think that waiting time penalties would only apply when an employer willfully withholds wages owed to an employee. That is not the case. The waiting time penalty applies in almost all cases where final pay is not tendered on a timely basis whether by design, neglect or even impossibility. The following hypotheticals may help you avoid or limit liability for final pay violations.

Hypothetical # 1: An employee gives 72 hours notice to end the employment relationship. Employer fails to give employee a final check on employee’s last day, but has the check ready two days later. On that day, employer informs former employee that he can come in and pick up the check, and the former employee agrees to pick up the check. Subsequently, the former employee fails to pick up the check for ten additional days.

Is the employee entitled to a waiting time penalty and, if so, in what amount?

The employee would be entitled to a waiting time penalty in the amount of two days wages. Here, employee gave sufficient notice of termination. Thus, the employer had a duty to pay all final wages at the time of termination. The employer failed to do so, and the penalty is applied for two days. The penalty does not extend for an additional ten days because the employer informed the employee that the check was ready. This is referred to as “Tender of Payment” and stops the waiting time penalty from accruing.

Hypothetical # 2: An employee quits her job without giving sufficient notice. On her last day, she confirms her mailing address with her employer and requests that the wages be mailed to her. Six days later, employee receives her final wage check in the mail. The envelope was postmarked two days after the employee’s final day of employment.

Is the employee entitled to a waiting time penalty and, if so, in what amount?

Employee would not be entitled to a waiting time penalty under these facts. Here, employee did not give 72 hours notice of termination. Thus, the employer was obligated to pay all of employee’s wages not later than 72 hours after the date she quit. Employer satisfied the obligation by mailing employee’s check to her, at her request, two days after her final day.

Hypothetical # 3: Same facts as hypothetical # 2, but the employee does not request that the wages be mailed to her.

In this scenario, how does the employer remit the employee’s final payment?

If the employee does not request that the wages be mailed to her, the employee must return to her former employer’s place of business 72 hours after quitting and demand the wages that are due. The waiting time penalty does not accrue unless this demand is made.

Hypothetical # 4: Employee gives 72 hours notice of terminating employment. On employee’s last day of work, he asks employer for his check. Employer responds that the check is not available and the employee must wait until the end of the payroll period when the payroll service prepares the checks. Two weeks after employee’s last day, he receives his check in the mail.

Is employee entitled to a waiting time penalty and, if so, in what amount?

The employee would be entitled to a waiting time penalty in the amount of 14 days wages. Under the Labor Code, when an employee gives sufficient prior notice of his intention to quit, the employee is entitled to his wages on his last day. Here, since the employee quit, gave sufficient notice, and did not receive his payment for two weeks, he is entitled to a waiting time penalty in the amount of 14 days wages.

Hypothetical # 5: Same facts as hypothetical #4, but employer is currently unable to forward employee’s final wages due to financial difficulty.

Is this a valid defense to the waiting time penalty?

No, inability to pay is not a defense to the waiting time penalty. The following scenarios also do not justify delaying final pay. Our payroll department is out-of-state and cannot get us the check in time. The employee has an outstanding debt or company property; we are not going to pay wages until employee pays us or returns the property.

Question & Answer
Question: When computing the amount of the penalty, do you count only the days an employee might have worked during the period for which the penalty accrues, or do you also include non-workdays?

Answer: All non-workdays are included. When computing the penalty you count all of the calendar days between the date payment was due and the date payment is tendered, including weekends, non-workdays, and holidays.

Question: Is overtime included in calculating the daily rate of pay for purposes of computing the waiting time penalty?

Answer: “Regularly scheduled” overtime is included in calculating the daily rate of pay for purposes of computing the waiting time penalty. Occasional or infrequent overtime is not included.

Question: Does the failure to reimburse business expenses within the statutory timeframe trigger the waiting time penalty?

Answer: No, reimbursement for business expenses is not included in the statutory definition of wages, and therefore will not trigger section 203.

Question: Does the failure to pay earned, accrued and unused vacation time trigger the waiting time penalty?

Answer: Yes. Under California law, earned vacation time is considered wages, and therefore the employer must pay the employee at his or her final rate of pay for all such earned, accrued, and unused vacation time.

Conclusion
To minimize the risk of claims for waiting time penalties, employers should carefully review their payment practices in connection with the cessation of an employee’s employment.