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Read the Fine Print: Payroll Companies Not Responsible for Employer Compliance

Many employers mistakenly presume they can depend on their payroll companies for legally compliant services.  The fine print will almost certainly establish otherwise.

Unfortunately, more than a few businesses have learned this lesson the hard way. It is common for payroll service providers to handle compensation calculations and paystub disclosures as their employer-clients instruct, even if it is wrong.

For example, a Los Angeles company may find its payroll vendor – even one of the larger ones – has been listing the state-mandated 24 hours of paid sick leave on worker pay statements, notwithstanding the higher 48-hour standard the city requires.  Even if previously unaware of the difference, that employer could well find its payroll company adjusts such benefit calculations on paystubs to match any higher local municipal minimums only if the client-employer specifically directs it.

Thus, “buyer (employer) beware.” Managers should read payroll service contracts carefully.  Agreements can commonly disclaim any payroll vendor responsibility for compliance with applicable federal, state or local workplace laws.  Thus, when a worker, or even a possible class of them, might raise a legitimate complaint over underpayment or other payroll violation, it’s typically the employer who holds the bag.

Especially in California with its shifting legal landscape, employers must thus be vigilant in seeking, understanding and properly applying the pertinent wage and hour laws.  While payroll companies can perform the mechanics of employee pay admirably, they are not an employer’s legal adviser or lookout.

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For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin

Tim Bowles

January 24, 2020